On March 6, the Third Session of the 14th National People's Congress held a press conference on economic themes. Pan Gongsheng, governor of the People's Bank of China, said on the spot that he would cut the RRR and interest rates at the right time according to the domestic and foreign economic and financial situation and the operation of the financial market.
According to Pan Gongsheng's relevant statements and interviews with reporters, in terms of monetary policy operation, in the short term, structural tools are better than quantitative tools, and quantitative tools are better than price tools. The reason for this is that in the context of net interest margin and exchange rate constraints, there is more room for structural monetary policy tools to exert force.
What are the main aspects of structural monetary policy tools this year? Jingtai interprets it for you.
The new chess game of monetary policy: RRR cut first, interest rate cut standby
Jingtai believes that the direction of "moderately loose monetary policy" proposed in this year's government work report is clear, but the specific operation pays more attention to the use of structural tools rather than traditional aggregate tools. Behind this strategy, there are not only considerations of the domestic economic and financial situation, but also the impact of external pressures and internal constraints.
From the perspective of the choice of monetary policy tools, the central bank is more inclined to give priority to the use of structural tools, followed by quantitative tools (such as RRR cuts), and finally price tools (such as interest rate cuts). This prioritization reflects the current focus of monetary policy: to avoid the negative impact of over-reliance on interest rate cuts in the context of stabilizing interest rate spreads and exchange rates.
At present, the reserve requirement ratio of financial institutions is 6.6% on average, and there is still room for downside, which makes the RRR cut a more feasible policy option in the short term. In contrast, interest rate cuts are facing both internal and external pressures: externally, the stability of the RMB exchange rate, and internally, the continuous narrowing of the net interest margin of commercial banks. As of the end of last year, the net interest margin of commercial banks had fallen to a record low of 1.52%, well below the desirable level of 1.8%. This situation limits the scope for policy rates (e.g. 7-day reverse repo rate) and LPR to be lowered.
In the face of constraints on aggregate easing, structural monetary policy tools have become an important direction for policy efforts. By providing targeted support for technological innovation, stabilizing the property market and stock market, and boosting consumption, the central bank has not only achieved precise regulation and control, but also avoided the impact of a comprehensive interest rate cut on interest rate spreads and exchange rates. This strategy not only helps to alleviate the operating pressure of commercial banks, but also enhances their ability to support the real economy.
In the short term, the probability of a reduction in the 7-day reverse repo rate and LPR is low, and the reduction standard is more maneuverable. It is expected that the central bank will adjust the use of policy tools according to the changes in economic fundamentals and external pressures in the second and third quarters. Wu Chaoming, vice president of the Caixin International Economic Research Institute, also pointed out that structural tools will become the main grasp of the current monetary policy easing.
Structural interest rate cuts: The central bank has made precise efforts to achieve a win-win situation for banks and key areas
Jingtai believes that the use of structural monetary policy tools has become an important part of the PBOC's policy toolbox, especially in supporting priority areas and weak links. Since 2021, the PBOC has successively created a variety of relending tools, such as carbon emission reduction support tools and special relending to support the clean and efficient use of coal, with interest rates maintained at 1.75%, and targeted support for the development of related sectors through the direct mechanism of "borrowing first and borrowing later".
As of the end of September last year, the central bank had 18 structural monetary policy tools, of which 10 were in existence, with a total balance of 6.66 trillion yuan. These instruments operate similarly, with a one-year maturity and lower interest rates, designed to strengthen support for specific sectors. However, as the central bank has cut interest rates several times, the spread between the policy rate and the relending rate has gradually narrowed or even inverted. For example, the 7-day reverse repo rate in November 2021 is 2.2%, and the spread with the refinancing rate is 45BP; At present, the 7-day reverse repo rate has fallen to 1.5%, and the spread has turned to -25BP.
This change in interest rate spreads has brought about two problems: first, the spread between the interest rate of loans in specific areas and the interest rate of ordinary loans has narrowed, which has reduced the incentive for enterprises to apply for loans in specific areas; Second, the interest rate differential between the lending interest rate and the relending interest rate issued by financial institutions through relending has been compressed, which has further exacerbated the pressure on banks' net interest margins. Therefore, from an objective point of view, it has become necessary to reduce the refinancing rate.
Pan Gongsheng, governor of the central bank, said at a recent press conference that there is still room for downward movement in the funding rate of structural monetary policy tools. Historically, the refinancing rate has been reduced by 25BP. For example, the interest rate on refinancing to support agriculture and small enterprises has been reduced by 25BP in 2020, 2021 and 2024, respectively, and is currently 2%. If the refinancing rate is lowered in the future, it is expected to follow this range, i.e. from 1.75% to 1.5%.
Structural rate cuts have unique advantages over across-the-board rate cuts. It can not only stimulate banks' willingness to support specific areas, but also directly reduce the cost of bank liabilities, thereby alleviating the pressure of narrowing net interest margins to a certain extent. This kind of targeted regulation and control not only achieves precise support, but also avoids the possible side effects of a comprehensive interest rate cut.
Jingtai advises investors to pay attention to the adjustment of the refinancing rate: if the refinancing rate is cut by 25bp to 1.5%, it will directly benefit the banking sector, especially small and medium-sized banks, as its debt cost is expected to be reduced.
|800 billion leveraged trillion credit, a welcome opportunity for consumption and capital markets
Jingtai believes that the further development of structural monetary policy tools, especially the increase in the amount of re-lending for scientific and technological innovation and technological transformation, marks the continuous increase in the central bank's policy efforts to support the real economy, especially in the field of scientific and technological innovation. Pan Gongsheng recently said that the amount of re-lending for scientific and technological innovation and technological transformation will be expanded from the current 500 billion yuan to 800 billion to 1 trillion yuan, which will significantly enhance financial support for small and medium-sized scientific and technological enterprises and technological transformation in key areas.
Since its inception in April last year, remarkable results have been achieved in scientific and technological innovation and refinancing for technological transformation. By the end of 2024, banks have docked 22,000 projects, with a docking rate of 93.3%; The amount of loan contracts signed exceeded 800 billion yuan, the actual amount of funds used by enterprises was nearly 200 billion yuan, and the total investment of corresponding projects reached 2.2 trillion yuan. Unlike other refinancing instruments, the facility is also accompanied by a fiscal discount policy, which makes the actual financing cost of the equipment renewal loan as low as 1.5%, much lower than the 3.1% of the 1-year LPR. This low-cost financing advantage has greatly stimulated the enthusiasm of enterprises to participate.
After the quota is increased to 800 billion to 1,000 billion yuan, the relending of scientific and technological innovation will become the second largest structural monetary policy tool after the relending of small enterprises. Based on the 60% financial support ratio, this amount can leverage 1.33 trillion to 1.67 trillion yuan of credit increment, further amplifying the effect of the policy.
Pan Gongsheng also mentioned that the central bank will study the creation of new structural monetary policy tools, focusing on supporting scientific and technological innovation, consumption boosting and foreign trade stability. Combined with the key task of "expanding domestic demand and boosting consumption" in this year's government work report, the market generally expects that the central bank may launch relevant relending tools to directly support the development of the consumption sector.
In addition, the central bank will also cooperate with the China Securities Regulatory Commission to explore normalized institutional arrangements to support the stable development of the capital market. This statement shows that the use of monetary policy tools is extending from the traditional credit market to the capital market, further broadening the space for policy support.
Jingtai suggests that investors pay attention to the field of scientific and technological innovation: the increase in the re-loan limit for scientific and technological innovation will directly benefit technology-based small and medium-sized enterprises and equipment renewal related industries, and it is recommended to focus on investment opportunities in semiconductors, new energy, high-end manufacturing and other fields.
Pay attention to capital market policies: The cooperation between the central bank and the China Securities Regulatory Commission may bring new liquidity support to the capital market, and investors can pay attention to the performance of related sectors such as securities firms and asset management.
