SCIO briefing on financial policy package to stabilize the market and expectations

CCTV:

Mr. Pan mentioned plans to lower both the reserve requirement ratio and policy rates, generating significant interest. Could you please provide more details about these measures? Thank you.

Pan Gongsheng:

Thank you for your question. Everyone is closely monitoring potential adjustments to key monetary policy instruments, particularly policy rates and reserve requirement ratios. Both the Central Economic Work Conference last December and this year's government work report called for implementing a moderately loose monetary policy, including timely cuts to both reserve ratio requirements and interest rates. A moderately loose monetary policy has several core elements. First, it maintains ample liquidity and relatively favorable financing conditions, including reasonable growth in macro financial metrics like aggregate financing and the M2 money supply, along with relatively low overall financing costs. Second, policy implementation must be flexible, with adjustments made as needed. We must comprehensively assess domestic and international economic and financial conditions, as well as financial market operations, and use various monetary policy tools to make dynamic adjustments. Third, the orientation of monetary policy refers to its overall stance. In recent years, the PBC has repeatedly lowered the reserve requirement ratio and interest rates, keeping monetary policy supportive and overall liquidity relatively ample.

Let me elaborate on the adjustments to the aggregate monetary policy measures I just announced.

First, we will lower the reserve requirement ratio (RRR). This time, we will lower the RRR by 0.5 percentage point, providing approximately 1 trillion yuan in long-term liquidity to the financial markets. By lowering the RRR, the PBC can optimize the structure of liquidity provision to the banking system, reduce banks' cost of liabilities and enhance the stability of their liabilities. At the same time, we will temporarily reduce the RRR for auto finance companies and financial leasing companies from the current 5% to 0%. These two types of institutions provide direct financial support to areas such as automobile consumption and equipment upgrade investments. Lowering their RRR will effectively enhance their ability to supply credit to specific sectors.

Second, regarding interest rate cuts, we'll implement three changes: First, we'll lower the policy rate by 0.1 percentage point. In our central bank's framework, the policy rate refers to the seven-day reverse repo rate in open market operations. It currently stands at 1.5% and will be lowered to 1.4%. Through market-based interest rate transmission, we expect this will lead to a corresponding 0.1 percentage point reduction in the LPR. At the same time, we will guide commercial banks to lower deposit interest rates accordingly through the self-regulatory mechanism for interest rates. Second, we will reduce interest rates on all structural monetary policy tools by 0.25 percentage point. Structural monetary policy tools generally refer to loans provided by the central bank to commercial banks. This move is expected to save banks approximately 15-20 billion yuan in funding costs annually, encouraging banks to strengthen their support for economic structural transformation. Third, we will reduce the interest rate on personal housing provident fund loans by 0.25 percentage point. For first-home loans with terms over five years, the rate will be cut from 2.85% to 2.6%, with rates for other loan terms adjusted accordingly. This is expected to save residents more than 20 billion yuan annually in provident fund loan interest payments, helping to support essential housing needs and stabilize the real estate market.

Meanwhile, the PBC will further improve its monetary policy framework, strengthen the implementation and supervision of interest rate policies, and enhance regulation of unreasonable market behaviors that might impede monetary policy transmission. This will help ensure smooth monetary policy transmission mechanisms and improve resource allocation efficiency.

These policy measures will provide financial institutions with a substantial amount of low-cost medium- and long-term funds, helping to reduce their debt costs and stabilize net interest margins. The policy effects will further translate to the real economy, leading to steady and potentially lower overall social financing costs, boosting market confidence, and effectively supporting stable growth in the real economy. Thank you.