The central bank will choose the right time to reduce the reserve requirement ratio! What are the specific measures? Does it have any impact on small and medium-sized enterprises?

The epidemic has had a great impact on all walks of life across the country. In order to stabilize the economy and all aspects during this special period, the central bank has chosen the opportunity to implement a targeted reduction in the reserve requirement ratio! What does it mean to selectively reduce the reserve requirement ratio? What are the specific measures? What impact will it have on small and medium-sized enterprises? Let’s take a look!

The central bank will cut the reserve requirement ratio at an appropriate time

Today, the State Council Information Office held a press conference on supporting the development of small, medium and micro enterprises and increasing support for individual industrial and commercial households. Liu Guoqiang, deputy governor of the People's Bank of China, said at the press conference that in response to the economic characteristics and market conditions during the special period of epidemic prevention and control, the People's Bank of China responded early and took quick action to fully support epidemic prevention and control and take targeted measures to support enterprises to resume work and production.

Specific measures:

1. Intensify open market reverse repurchase operations

The winning rates of open market reverse repurchase, medium-term lending facility, and loan market benchmark rates have each dropped by 10 basis points, driving the overall market interest rates downward. This has played a key role in maintaining market liquidity and smooth operation of financial markets in the initial stage of post-holiday trading. At present, these short-term liquidity have been basically withdrawn, while the liquidity of the banking system remains reasonably abundant.

2. Establish a 300 billion yuan low-cost special refinancing facility

Provide funds to major national banks and some local corporate banks in 10 key provinces and cities such as Hubei, to provide targeted support to enterprises directly involved in fighting the epidemic. 300 billion yuan was given to nine national banks and 10 local banks in key areas, asking them to lend to anti-epidemic enterprises that produce epidemic prevention materials, such as masks, protective clothing, disinfectants, etc., what doctors and nurses wear, as well as transportation. These are the main targets. We lend to these banks, and these banks lend to these enterprises. These enterprises are managed on a list system. The above two measures are precise measures, one in terms of total volume and the other in terms of structure. These measures have effectively stabilized market sentiment and provided support for winning the battle against the epidemic. As of February 25, 1,008 key supply-guarantee enterprises had obtained loans. After the fiscal subsidy, the actual interest rate of these loans is 1.28%, which is lower than the requirement of no more than 1.6% stipulated by the State Council. In addition, the current 7-day repurchase rate in the interbank market is around 2.2%, remaining stable. The stock market and foreign exchange market are somewhat flexible, but generally stable. It should be said that the policy measures we have taken to respond to the epidemic have been affirmed by all parties.

In the next step, the prudent monetary policy must be more flexible and moderate , and support for the recovery and development of the real economy must be placed in a more prominent position. By stabilizing expectations, expanding the total volume, classifying, extending the deadline, creating tools, and ensuring implementation, we will provide strong monetary policy support for fighting the epidemic and supporting the real economy, minimize the impact of the epidemic on the economy, and strive to achieve the annual economic and social development goals. First, make good use of existing support policies. We should make good use of the policies that have been introduced before, continue to make good use of the special re-lending policy, and give priority to small and medium-sized banks. Comprehensively use monetary policy tools such as open market operations, standing lending facilities, and medium-term lending facilities, and choose the right time to implement the 2019 dynamic assessment of targeted reserve requirement ratio cuts for inclusive finance to release long-term liquidity. Because some banks have reached the standards for inclusive financial services, their reserve ratio levels will be lowered in a targeted manner to support them in further improving inclusive financial services. In addition, we must continue to advance LPR reform to guide overall market interest rates and loan interest rates downward.

Second, new policies and measures should be introduced in a timely manner to focus on supporting enterprises in resuming work and production . Increase the amount of re-lending and re-discounting, and guide various banks in a classified manner to issue preferential interest rate loans to small, medium and micro enterprises to resume work and production. Guide financial institutions to increase credit support for small and micro enterprises, encourage banks to adopt various methods to supplement capital, and explore innovative tools for banks to supplement capital. Now we provide banks with a large amount of low-cost funds. The liquidity and liquidity costs of small and medium-sized banks have been greatly alleviated. However, there is still a constraint for banks to lend, which is their capital. Therefore, in the next stage, we will increase policy support for small and medium-sized banks in terms of capital replenishment based on the needs of bank loan growth, enhance the overall credit lending capacity of banks, and further promote the development of the real economy.