- Cuts in RRR and 7-day reverse repo rate to boost liquidity.
- Cuts in home loan rates; property down payment ratios eased.
- We think these measures would reduce financial sector risks.
- New swap facilities and relending program to stabilise stock market are significant.
- Implications for our forecast: With these measures, 2024 growth target of 5% looks attainable.
In a show of coordinated support for the economy, the Governor of the People's Bank of China (PBOC), National Financial Regulatory Commission Secretary, and Chairman of the China Securities Regulatory Commission (CSRC), in a joint press conference today, announced a series of economy and market supporting measures.
Policies announced:
2. Lower interest rates on existing mortgages and unify minimum down payment ratios. Commercial banks will be guided to lower interest rates on existing mortgages close to the rates on newly issued mortgages, with an average decline of around 0.5 ppts. The minimum downpayment ratio for first and second home purchases will be lowered from 25% to 15%. Central bank support for RMB300 bn guaranteed housing loan will be raised from 60% to 100%. Policies on maturing business property loans and "16 Financial Measures" will be extended to the end of 2026 (originally expiring in 2024).
3. Introduce new monetary policy tools to support stable stock market development. Securities firms, funds, insurers will be allowed to access central bank liquidity through pledged assets. PBOC will also set up a separate specialized refinancing facility for listed companies and major shareholders.
Implications:
1. Reduced reserve requirement ratio is projected to release approximately RMB1 trn in long-term bank capital. This augmented liquidity will help facilitate the planned issuance of RMB2.1 trn in special local government bonds through the end of the year. Such funding supports ongoing infrastructure investment and development projects without crowding out private sector lending.
The 20bp reduction in the 7-day reverse repo rate would decrease the medium-term lending (MLF) by 30bps and loan prime rates (LPR) by 20-25bps. This calibrated adjustment seeks to stimulate investment and consumption by lowering the financing costs borne by enterprises and consumers.
As far as banks' net interest margin (NIM) is concerned, while lowering RRR and existing mortgage rates could negatively impact bank NIM by 5-6 bps if deposit rates remain unchanged, the RRR cut also provides lower funding cost for banks. Therefore, the overall effect on NIM is likely modest when considering this funding relief alongside downward rate pressures.
3. New swap facilities will enhance eligible entities' liquidity access through pledged asset transactions with the central bank. Targeted relending programs will also direct bank financing to listed companies and major shareholders, facilitating stock buybacks and enriching shareholdings. Combined, these initiatives seek to bolster market confidence and stability after previous efforts fell short of driving a sustainable recovery. State investment vehicles have reportedly purchased an estimated US$80 bn of onshore ETFs YTD in an attempt to prop up valuations. Regulators have also tightened curbs on short selling and quantitative trading to reduce volatility and prevent a downward spiral.Conclusion:
With this package of coordinated monetary and regulatory actions, the authorities aim to stabilize economic growth by boosting liquidity, lowering borrowing costs, revitalizing the real estate sector, and bolstering stock market sentiment. The sheer scope and urgency of introducing measures across multiple domains simultaneously underscores the government's determination to place growth on a firmer footing to meet this year's 5% target.
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Nathan Chow 周洪禮
Senior Economist and Strategist - China & Hong Kong 高級經濟學家及策略師 - 中國及香港
[email protected]
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