Central Bank's Big Moves: Cut RRR, Interest Rates, Housing Loan Rates...

On the morning of September 24, 2024, the State Council Information Office held a press conference where Pan Gongsheng, the Governor of the People's Bank of China (hereinafter referred to as "the Central Bank"), announced three major policies: First, to reduce the reserve requirement ratio and policy interest rates, thereby driving down market benchmark interest rates; Second, to lower the interest rates on existing housing loans and unify the minimum down payment ratio for housing loans; Third, to create new monetary policy tools to support the stable development of the stock market.

The Economic Observer has sorted out the key words of Pan Gongsheng's speech.

Many analysts have said that the policy has a greater impact, exceeding market expectations.

Yang Chang, the chief analyst of the Policy Group at Zhongtai Securities Research Institute, said that the aforementioned policies reflect the characteristics of promoting the stable operation of the economy from the monetary policy level.

Among them, by reducing the reserve requirement ratio, it further releases long-term liquidity of about 1 trillion yuan, which is beneficial for creating a more abundant capital environment for the real economy; Unifying the minimum down payment ratio for the first and second housing loans further reduces the threshold for buying a house and creates conditions for attracting residents to participate in the real estate market.

Liang Si, a researcher at the Bank of China Research Institute, believes that the Central Bank's introduction of policy measures this time has a greater impact and has a strong promoting effect on the improvement of market expectations.

The reduction in reserves will enhance the ability of financial institutions to serve the real economy from both assets and liabilities; Policy interest rates will guide the overall downward shift of the interest rate system, further reducing the financing costs of the real economy; The introduction of new monetary policy tools will help the stock market stabilize.

Key word one: The reduction of reserves releases 1 trillion liquidity Original text: Reduce the reserve requirement ratio and policy interest rates.

The reserve requirement ratio will be reduced by 0.5 percentage points in the near future, providing long-term liquidity of about 1 trillion yuan to the financial market; This year, depending on the situation of market liquidity, it may further reduce the reserve requirement ratio by 0.25-0.5 percentage points.

Interpretation: Wang Qing, the chief macro analyst of Dongfang Jincheng, said that the reduction of reserves this time is relatively large, that is, while "reducing the reserve requirement ratio by 0.5 percentage points in the near future", it also announced that "this year, depending on the situation of market liquidity, it may further reduce the reserve requirement ratio by 0.25-0.5 percentage points", the latter exceeding the market's general expectations.

The liquidity released by this reduction of reserves is about 1 trillion yuan.

Ming Ming, the chief economist of CITIC Securities, said that since August, the issuance and net financing rhythm of local bonds have been significantly increased, and the net financing scale of local bonds in September is the highest level this year.

Commercial banks, as the main demand side of local bonds, face certain pressure to bear.

Since August, the interbank deposit certificate rate has continued to rebound.

Under the appeal of reducing the financing costs of the real economy, it is still necessary to reduce the liability costs of commercial banks.

The Central Bank's reduction of reserves to supplement the medium and long-term liquidity of commercial banks is also in line with market demand.

Key word two: Policy interest rate reduction Original text: Reduce the policy interest rate of the central bank, that is, the reverse repo operation interest rate for 7 days is reduced by 0.2 percentage points, from the current 1.7% to 1.5%, and guide the loan market quotation rate and deposit rate to move down synchronously, maintaining the stability of the net interest margin of commercial banks.

Interpretation: The interest rate cut is mainly reflected in the central bank's reduction of policy interest rates.

The day before this meeting, on September 23, the central bank reduced the reverse repo interest rate for 14 days by 10 basis points to 1.85%, the first time since September 2023.

On the same day, the reverse repo interest rate for 7 days remained unchanged at 1.7% (reduced by 10 basis points in July).

In this meeting, Pan Gongsheng announced that the reverse repo operation interest rate for 7 days will be reduced by 0.2 percentage points, from the current 1.7% to 1.5%.

After the policy interest rate cut, the LPR (loan market quotation rate) in October is expected to be reduced.

Ming Ming, the chief economist of CITIC Securities, believes that the reverse repo interest rate cut of 20 basis points, guiding the LPR and deposit rate to move down synchronously, can reduce the financing costs of the real economy.

At the level of price tools, this meeting mentioned that the reverse repo interest rate will be reduced by 20 basis points, from 1.7% to 1.5%, and the LPR and deposit rate will be adjusted synchronously, with the reduction range of 20 to 25 basis points; The medium-term lending facility (MLF) will be reduced by about 30 basis points.

Liang Si, a researcher at the Bank of China Research Institute, also believes that the policy interest rate will guide the overall downward shift of the interest rate system, further reducing the financing costs of the real economy.

The reverse repo interest rate for 7 days is the policy interest rate and the center of the interest rate system.

Its reduction means that the subsequent LPR is expected to be reduced synchronously, and the credit interest rate linked to the LPR will also move down synchronously, further reducing the financing costs of enterprises and the burden of residents buying a house.

Coupled with the continuous effect of policies such as the reduction of existing housing loan interest rates and down payment ratios, it helps to alleviate the pressure of residents' debt repayment, stimulate residents' demand for buying a house, and promote the real estate market to recover as soon as possible.

Regarding the impact of this interest rate cut, Ming Ming said that from the perspective of internal demand, the financial data has been relatively weak this year, and the willingness of residents to leverage is weak.

In the low inflation environment, the actual interest rate is still relatively high, and a significant interest rate cut helps to strengthen the counter-cyclical adjustment strength.

From the perspective of the external environment, after the Federal Reserve's interest rate cut, the interest rate spread between China and the United States has gradually narrowed, and the overall strength of the renminbi exchange rate has eased the constraints on the target of stable exchange rates for loose money, and China's interest rate cut also has more room.

Key word three: Reduce the interest rate of existing housing loans Original text: Guide commercial banks to reduce the interest rate of existing housing loans to the vicinity of newly issued loans, and it is expected that the average decline will be about 0.5 percentage points.

Interpretation: Recently, due to the high interest rate of existing housing loans, the phenomenon of residents repaying housing loans in advance is still obvious, and there is a high call in the market for the reduction of the interest rate of existing housing loans.

Wang Qing, the chief macro analyst of Dongfang Jincheng, believes that this will effectively curb the tide of repaying loans in advance and alleviate its impact on residents' consumption.

At the same time, it also releases a positive signal for stabilizing the real estate market, which is conducive to promoting the real estate market to stabilize and recover.

Pan Gongsheng said that the bank's reduction of the interest rate of existing housing loans is conducive to further reducing the interest expenditure of borrowers' housing loans.

It is estimated that this policy will benefit 50 million households and 150 million people, and the total annual interest expenditure of households will be reduced by about 150 billion yuan, which is conducive to promoting the expansion of consumption and investment.

It is also conducive to reducing the behavior of repaying loans in advance, and it can also compress the space for illegal replacement of existing housing loans, protect the legitimate rights and interests of financial consumers, and maintain the stable and healthy development of the real estate market.

By the end of June this year, the scale of existing housing loans was 37.8 trillion yuan.

Wang Qing said that a 0.5 percentage point reduction in interest rates means that the bank's interest income will be reduced by 189 billion yuan a year, equivalent to about 8.2% of the total profit of the banking industry in 2023.

Wang Qing believes that the regulatory authorities will alleviate this by guiding commercial banks to orderly reduce deposit interest rates.

By the end of June this year, the balance of various deposits of commercial banks was 296.5 trillion yuan.

This means that a 0.64 percentage point average reduction in deposit interest rates can offset the impact of a 50 percentage point reduction in existing housing loan interest rates on bank profits.

This can alleviate the burden on families with housing loans while easing the squeeze on bank profits.

Pan Gongsheng also emphasized at the meeting that the Central Bank will officially release relevant documents in the near future.

Because there are many borrowers involved, banks also need to have a certain amount of time for necessary technical preparation.

The next step, the Central Bank is also considering guiding commercial banks to improve the pricing mechanism of mortgage loans, and the banks and customers will autonomously negotiate and adjust dynamically based on market principles.

Key word four: Unify the minimum down payment ratio of housing loans, etc.

Original text: Unify the minimum down payment ratio of the first and second housing loans, and reduce the minimum down payment ratio of the second housing loan at the national level from the current 25% to 15%.

Increase the support ratio of the central bank's funds for the 300 billion yuan guarantee housing reloan created by the Central Bank in May from the original 60% to 100%, and enhance the market incentive for banks and acquisition entities.

Extend the two policy documents of the business property loan expiring at the end of the year and the "Financial 16 Articles" to the end of 2026.

Originally, these two documents were due at the end of this year.

We and the Financial Regulatory General Bureau have extended these two documents to the end of 2026.

Interpretation: Unifying the minimum down payment ratio of the first and second housing loans to 15% will reduce the threshold for buying the second house.

At the same time, Wang Qing believes that for the guarantee housing reloan tool, increasing the support ratio of the central bank's funds will significantly speed up the progress of various places to purchase existing commercial housing as a guarantee house, and alleviate the pressure of commercial housing market inventory.

The above two measures mean that the real estate support policy has significantly increased on the demand side.

The Central Bank announced that "the two policy documents of the business property loan expiring at the end of the year and the 'Financial 16 Articles' will be extended to the end of 2026."

Wang Qing said that this means that the real estate financing support policy, focusing on the "three arrows", will be extended for one year.

It is expected that the next step will focus on implementing the urban real estate financing coordination mechanism, and the source of real estate financing for real estate companies will continue to improve after turning positive on a year-on-year basis in August.

Combined with the above interest rate cut and other policies, Ming Ming, the chief economist of CITIC Securities, believes that on the demand side, on the basis of the LPR cut, reducing the interest rate of existing housing loans on the benchmark interest rate will greatly improve the debt cost of homebuyers and reduce the pressure of repaying loans in advance; Reducing the down payment ratio helps to stimulate the repair of real estate demand.

On the supply side, Ming Ming believes that the support for guarantee housing reloans has been increased, and the extension of business property reloans and the "Financial 16 Articles" policy documents helps to improve the financing and operating environment of real estate companies and support the repair of the real estate industry.

At the same time, Pan Gongsheng mentioned in an interview that he is studying to allow policy banks and commercial banks to support qualified enterprises to marketably purchase land from real estate companies, activate existing land, and alleviate the financial pressure of real estate companies.

If necessary, the Central Bank can provide policy support, which is expected to improve the operating environment of real estate companies and the supply and demand relationship of the real estate industry.Translation: Keyword Five: Establishing New Monetary Policy Tools to Support the Stable Development of the Stock Market Original Text: Establishing new monetary policy tools to support the stable development of the stock market.

The first item is the creation of a securities, fund, and insurance company swap facility, supporting qualified securities, fund, and insurance companies to obtain liquidity from the central bank through asset pledge, a policy that will greatly enhance the institutions' ability to obtain funds and increase their stock holdings.

The second item is the creation of a special re-lending facility for stock buybacks and increases, guiding banks to provide loans to listed companies and major shareholders to support buybacks and stock increases.

Interpretation: Ming Ming, the chief economist at CITIC Securities, stated that the creation of securities, insurance, and fund swap facilities, and the re-lending tools for stock buybacks and increases, indicates that the central bank is strengthening its support for the equity market.

This meeting mentioned innovative tools to support the equity market, including the creation of securities, fund, and insurance company swap facilities, obtaining liquidity from the central bank through asset pledge, enhancing the institutions' ability to obtain funds and increase their stock value; creating a special re-lending facility for stock buybacks and increases, guiding loans to listed companies and major shareholders to support buybacks and stock increases.

Both tools are helpful in injecting liquidity into the equity market, improving market expectations, but they are not essentially the central bank directly purchasing assets in the equity market, thus there is a fundamental difference from the Bank of Japan's QQE (Quantitative and Qualitative Monetary Easing).

It is expected that as the central bank's equity market support tools are implemented, stock market expectations may further improve, and the central bank's ability to guide and manage the market will gradually increase.

Liang Si said that the introduction of new monetary policy tools will help stabilize the stock market.

Introducing policy tools to support the development of the stock market is conducive to promoting the stabilization and healthy development of the stock market.

The stable operation of the secondary market is beneficial for the reasonable pricing of the primary market, thereby enhancing the willingness of enterprises to go public and raise funds, and the performance of related products such as stocks and funds is expected to improve, which will increase the property income of residents and enhance their willingness to consume.