Recently, the regular meeting of the Monetary Policy Committee of the People's Bank of China in the second quarter of 2024 (the 105th in total) was held in Beijing. The central bank pointed out that it is necessary to effectively implement various existing structural monetary policy tools, and promote the implementation of newly established tools such as re-lending for scientific and technological innovation and technological transformation, and re-lending for affordable housing. Increase financial support for the "market + security" housing supply system, and promote the acceleration of the construction of a new model of real estate development.

What information is released from the regular meeting? Jingtai interprets for you!

The economic and financial situation at home and abroad is grim

The meeting believed that since the beginning of this year, the macro policy has adhered to the principle of stability and seeking progress while maintaining stability, the prudent monetary policy is flexible, moderate, precise and effective, strengthened counter-cyclical adjustment, and comprehensively used interest rates, reserves, re-lending and other tools to effectively serve the real economy, effectively prevent and control financial risks, and create a suitable monetary and financial environment for the economic rebound. The reform of the loan market prime interest rate has achieved remarkable results, the role of the market-oriented adjustment mechanism of deposit interest rates has been effectively played, the transmission efficiency of monetary policy has been enhanced, and the cost of social financing has continued to decline.

The supply and demand of the foreign exchange market are basically balanced, the current account surplus is stable, the foreign exchange reserves are sufficient, the RMB exchange rate floats in both directions, and the expectation is stable, which remains basically stable at a reasonable and balanced level.

The meeting pointed out that the current external environment is becoming more complex and severe, the momentum of world economic growth is not strong, inflation is still sticky at a high level, and the economic growth and monetary policies of major economies are differentiated.

China's economic operation continues to pick up and improve, and high-quality development has been steadily promoted, but it still faces challenges such as insufficient effective demand and weak social expectations. It is necessary to seek progress while maintaining stability, promote stability with progress, establish first and then break down, and constantly consolidate the foundation for stability and improvement. We will accurately and effectively implement a prudent monetary policy, pay more attention to counter-cyclical adjustment, give better play to the dual functions of monetary policy tools, and strive to expand domestic demand, boost confidence, and promote a virtuous cycle of the economy.

It is necessary to intensify the implementation of the monetary policy that has been introduced

It is necessary to implement policies, maintain reasonable and abundant liquidity, guide the rational growth and balanced allocation of credit, and keep the scale of social financing and money supply in line with the expected targets of economic growth and price levels. Promote a moderate recovery in prices and keep prices at a reasonable level.

We will improve the formation and transmission mechanism of market-oriented interest rates, enrich the monetary policy toolbox, give full play to the guiding role of the central bank's policy interest rates, release the effectiveness of the reform of the loan market prime interest rate and the market-oriented adjustment mechanism of deposit interest rates, and promote the steady decline of corporate financing and household credit costs.

At the same time, in the process of economic recovery, it is also necessary to pay attention to the changes in long-term yields. Smooth the monetary policy transmission mechanism and improve the efficiency of capital use.

Maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, implement comprehensive policies, correct deviations, stabilize expectations, resolutely correct pro-cyclical behavior, prevent the formation of unilateral consistent expectations and self-reinforcing, and resolutely guard against the risk of exchange rate overshoot.

Deepen the supply-side structural reform of the financial sector

At present, it is important to guide large banks to play the role of the main force in financial services for the real economy, promote small and medium-sized banks to focus on their main responsibilities and main businesses, support banks to replenish capital, and jointly maintain the stable development of the financial market. We will do a good job in science and technology finance, green finance, inclusive finance, pension finance, and digital finance, continue to increase support for major strategies, key areas and weak links, and promote the acceleration of the development of new quality productivity.

Effectively implement the various existing structural monetary policy tools, and promote the implementation and effectiveness of newly established tools such as re-lending for scientific and technological innovation and technological transformation, and re-lending for affordable housing.

Increase financial support for large-scale equipment renewal and trade-in of consumer goods. Comprehensive policies to support coordinated regional development. Implement the action plan to increase support for the financing of science and technology enterprises, guide financial institutions to increase medium and long-term loans for the manufacturing industry with market demand, and support the acceleration of the construction of a modern industrial system. Adhere to the "two unswerving" and continue to do a good job in financial services to support the development and growth of the private economy. Fully understand the new changes in the relationship between supply and demand in the real estate market, conform to the new expectations of the people for high-quality housing, and strive to promote the implementation of the financial policies and measures that have been introduced to achieve results, and promote the steady and healthy development of the real estate market.

Increase financial support for the "market + security" housing supply system, and promote the acceleration of the construction of a new model of real estate development. Implement financial policy measures to promote the healthy development of the platform economy. Earnestly promote high-level two-way financial opening-up, and improve economic and financial management capabilities and risk prevention and control capabilities under the conditions of opening-up.

The urgency of interest rate cuts is higher than that of RRR cuts

The specific formulation of this regular meeting is exactly the same as that of the previous quarter, and it continues to emphasize "paying more attention to counter-cyclical adjustment", "keeping the scale of social financing and money supply in line with the expected targets of economic growth and price levels", "promoting a moderate recovery in prices", and "promoting a steady and moderate decline in the cost of corporate financing and household credit". This means that the monetary policy will continue to work hard in the direction of stable growth, and after the policy observation period since February, the window for interest rate cuts and RRR cuts in the third quarter is expected to open again.

In terms of RRR cuts, the banking system has been in a state of abundant funds recently, mainly due to the year-on-year decrease of about 1.5 trillion yuan in new credit in January ~ May, coupled with the slow pace of government bond issuance since the beginning of the year. However, with the reversal of the effect of "balanced loan delivery" and the weakening of the impact of financial "squeezing", credit is expected to resume year-on-year growth in the second half of the year, and the pace of government bond issuance in the third quarter will also accelerate significantly. In this way, it is possible to implement another RRR cut in the third quarter. This can also encourage banks and other financial institutions to actively participate in local debt risk resolution through debt swaps and other means.

In terms of policy interest rates, in the context of the continuous adjustment of the real estate industry and the downward pressure on the economy, the key now is to solve the problem of low prices and high real interest rates, avoid the formation of low prices, low income, and low consumption cycles, and guide the real estate industry to achieve a soft landing as soon as possible. Considering that the price recovery in the second half of the year will be relatively limited, the role of interest rate cuts is irreplaceable, and the urgency of interest rate cuts is higher than that of RRR cuts.