On Friday, August 4th, the National Development and Reform Commission, the Ministry of Finance, the People's Bank of China, and the State Administration of Taxation jointly held a press conference to introduce the situation of "playing a good role in combining macroeconomic policies and promoting high-quality economic development".

01 | The disturbance of special bonds is not obvious, and the funding gap in August is controllable. One disturbing factor in the recent reduction and re raising of reserve requirements is the acceleration of local bond issuance. The regulatory authorities require the issuance of new special bonds in 2023 to be completed by the end of September, which has put pressure on market funds and prompted the market to aspire to the implementation of reserve requirement reduction. However, many institutional analysts believe that the funding gap caused by local bond issuance is not significant. The special bonds issued from January to July have reached 2.5 trillion yuan. If the annual quota is completed before September, it is estimated that a total of 1.3 trillion yuan will be issued from August to September, with a monthly average of 0.65 trillion yuan, which is a relatively high level of single month issuance in history. The highest monthly issuance in history was in June 2022, with a single monthly issuance of 1.3 trillion yuan, much higher than the amount of contingent special bond issuance from August to September this year. From this perspective, the average monthly issuance of special bonds from August to September this year is not particularly high. The expected issuance scale of government bonds in August is approximately 2.01 trillion yuan, with a maturity of 1 trillion yuan and a net financing scale of approximately 1.01 trillion yuan. Meanwhile, it is expected that the net investment scale of fiscal deposits will further expand to around 820 billion yuan in August 2023; Considering factors such as the liquidity of approximately 110 billion yuan collected by financial institutions in August. Overall, there may be a funding gap of around 350 billion yuan in August, and overall liquidity pressure is not significant. Whether to lower the reserve requirement, more attention should be paid to the pace of credit disbursement and the related bank liquidity gap.

02 | Timely and moderately carry out countercyclical regulation. The Central Bank responded to the issue of "interest rate and reserve requirement reduction" at a press conference. Zou Lan, Director of the Monetary Policy Department of the People's Bank of China, stated that in the next stage, we will strengthen countercyclical regulation and policy reserves, increase macroeconomic regulation efforts, focus on expanding domestic demand, boosting confidence, preventing risks, and accurately and effectively implement a prudent monetary policy. On the one hand, the reduction of reserve requirements, open market operations, convenient medium-term lending, and various structural monetary policy tools all have a total effect of providing liquidity. It is necessary to coordinate and flexibly use them to jointly maintain the reasonable and sufficient liquidity of the banking system. The goal of comprehensively evaluating the deposit reserve ratio policy is to maintain the reasonable and sufficient liquidity of the banking system. On the other hand, it is necessary to scientifically and reasonably grasp the level of interest rates. Based on the economic and financial situation and the needs of macroeconomic regulation, timely and moderate countercyclical adjustment should be carried out, while also taking into account the balance between growth and risk, as well as internal and external factors, to prevent fund arbitrage and idle, improve policy efficiency, and enhance the stability of bank operations.

03 | Guide banks to adjust the interest rates of existing personal housing loans in an orderly manner in accordance with the law to support the smooth operation of the real estate market. Continue to implement the guaranteed housing loan support plan until the end of May 2024, while steadily promoting the implementation of the rental housing loan support plan in pilot cities. Since the setting of the tone at the Central Political Bureau meeting on July 24th, multiple ministries and commissions such as the Ministry of Housing and Urban Rural Development, the People's Bank of China, and the National Development and Reform Commission have continued to speak out, releasing positive signals, and the real estate policy has entered a phase of comprehensive easing. From the perspective of local implementation, by the end of July, all first tier cities had expressed their willingness to "better meet the rigid and improved housing needs of residents." On August 3rd, Zhengzhou took the lead in releasing 15 measures, marking the first shot in optimizing the real estate market policy. On August 4th, media reported that in response to a question about how Beijing will support residents' demand for rigid and improved housing, the Beijing Municipal Commission of Housing and Urban Rural Development replied that it is actively promoting the implementation of the detailed rules. It is expected that the restrictive policies introduced by first and second tier cities during the overheated market stage will gradually improve, and the speed of implementation from the central government to local governments will accelerate.

04 | The implementation of the rental housing loan support plan is expected to accelerate. The meeting mentioned "steadily promoting the implementation of the rental housing loan support plan in pilot cities". In January of this year, the central bank established a 100 billion yuan rental housing loan support plan to support relevant financial institutions in issuing rental housing purchase loans to eight pilot cities, including Chongqing, Jinan, Zhengzhou, Changchun, Chengdu, Fuzhou, Qingdao, and Tianjin, by the end of 2023, Used to purchase existing housing and expand the supply of rental housing. As of the first half of the year, the rental housing loan support plan has been implemented in pilot cities such as Jinan, Fuzhou, and Zhengzhou. In May, Jinan Urban Investment Group and Fujian Zuohai Group respectively received loan support of 460 million yuan and 488 million yuan from China Development Bank. Next, the implementation speed of the rental housing loan support plan is expected to further accelerate, which will help alleviate the financial pressure of pilot cities to raise rental housing, expand the supply of rental housing, and also help alleviate inventory pressure in the real estate market and improve the housing supply structure. At the same time, the press conference proposed to "orderly expand the issuance scale of real estate investment trusts (REITs) in the infrastructure sector". Rental housing, as an important component of the underlying assets of infrastructure public REITs, has repeatedly received policy support. On the one hand, the central government has introduced policies to lower the threshold for issuing infrastructure REITs for guaranteed rental housing projects, and has studied and promoted the expansion of public REITs pilot projects to market-oriented long-term rental housing. At the same time, it supports eligible private investment projects to issue infrastructure REITs. On the other hand, various regions are also actively implementing and providing business guidance for reserve projects planned to issue REITs in Shanghai, Shenzhen, and other places.

05 | There is still pressure for the depreciation of the RMB, and the interest rate level should not be too low. According to central bank data, in June, the weighted average interest rate for corporate loans was 3.95%, a year-on-year decrease of 0.21 percentage points, continuing to be at a historical low; The weighted average interest rate for personal housing loans was 4.11%, a year-on-year decrease of 0.51 percentage points. At the same time, the net interest margin of commercial banks at the end of March this year was 1.74%, at a historical low. On August 4th, Zou Lan stated that it is necessary to continue to play an important role in the market-oriented adjustment mechanism of deposit interest rates, maintain market competition order, support banks in reasonably controlling debt costs, and enhance the ability of finance to continue supporting the real economy. The macro analysts of the aforementioned institutions believe that the interest rate center in the domestic market continues to decline, and in the past month, the RMB has continued to be under pressure to depreciate. The Federal Reserve's interest rate hike has widened the interest rate gap between the two countries. In the current situation, further cuts in reserve requirements and interest rates will increase the pressure on the RMB to depreciate.