Monetary policy anticipatory fine-tuning efforts or increase

- Mar 01, 2019-

In order to further support the development of the real economy, optimize the liquidity structure and reduce financing costs, the people's bank of China has decided to cut the reserve requirement ratio of financial institutions by 1 percentage point, including 0.5 percentage point on January 15 and January 25, 2019 respectively.Meanwhile, the medium-term lending facility (MLF), due in the first quarter of 2019, is no longer up for renewal.

Central bank officials said that the reduction will release about 1.5 trillion yuan of funds, coupled with the upcoming targeted medium-term lending facilities operation and the targeted reduction of financial inclusion dynamic assessment of the release of funds, and after considering the first quarter of this year to the expiration of the medium-term lending facilities no longer do factor, the net release of about 800 billion yuan of long-term funds.The central bank said that the cut is still targeted regulation, rather than flooding irrigation, steady monetary policy orientation has not changed.The RRR reduction policy was implemented in two phases, in line with the pace of cash supply before the Spring Festival. It is conducive to maintaining reasonable and sufficient total liquidity in the banking system, balancing the internal and external balance, and maintaining the basic stability of the RMB exchange rate at an appropriate and balanced level.

Dong ximiao, vice-president of the chongyang institute of finance at renmin university of China, said the cut was fully in line with expectations.In April 2018, the central bank implemented the second on-time cut of the year, * allowing Banks to repay their MLF with the funds released by the RRR cut in a "" borrowing on time" "order.This approach will help increase the stability of the banking system's capital, optimize the liquidity structure, and properly release incremental capital.This move will help guarantee the capital supply of financial institutions, maintain reasonable and sufficient market liquidity, promote the smooth operation of the financial market and facilitate commercial Banks to provide various financial services before and after the Spring Festival.

Li he, a researcher at the institute of international finance at the bank of China, said the RRR cut is a measure to serve the real economy, ease downward pressure on the economy and support inclusive finance.He said he expects two or three more cuts this year.In order to better realize the role of price control tools, it is necessary to gradually reduce the binding force of quantitative control tools such as the reserve requirement ratio.

Dong ximiao also said that in 2019, monetary policy adjustment and fine-tuning will likely increase.Besides lowering the reserve requirement, it is more important to improve the transmission mechanism of monetary policy, he said.From the second half of 2018, after successive targeted RRR cuts and open market operations, liquidity has been relatively abundant and the target of "broad currency" has been achieved. However, small and micro businesses and private enterprises still find it difficult and expensive to raise funds.One of the reasons is that the "broad currency" did not move towards "wide credit", and the key to realize the transition from "wide currency" to "wide credit" is the transmission of monetary policy.Therefore, the monetary policy transmission mechanism should be further dredged, especially the positive incentives for financial institutions should be further enhanced, so that liquidity can be injected into real enterprises more efficiently.