The central bank takes a heavy blow, cutting reserve requirements, interest rates, and existing mortgage loans!

On the morning of September 24, the State Council Information Office held a press conference on the financial support for high-quality economic development.

At the meeting, the central bank governor Pan Gongsheng announced that he will increase the intensity of monetary policy regulation, improve the precision of monetary policy regulation, and release a series of heavy policies to reduce reserve requirements, interest rates, and existing mortgage loan interest rates, and create new policy tools.

Analysts pointed out in an interview with reporters that this round of reserve requirement cuts and interest rate cuts are relatively large, releasing a strong signal of stable growth.

As a series of favorable factors are gradually released, market confidence will be effectively boosted, and it is expected that the existing mortgage loan interest rate will be normalized and reduced in the future.

A number of heavy policies will be implemented, specifically, the policies to be implemented this time mainly include three aspects: First, reduce the reserve requirement ratio and policy interest rates, and drive the market benchmark interest rates to fall.

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Among them, the reserve requirement ratio will be reduced by 0.5 percentage points in the near future, providing about 1 trillion yuan of long-term liquidity to the financial market.

This year, depending on the liquidity situation, it may further reduce the reserve requirement ratio by 0.25 to 0.5 percentage points.

In addition, the 7-day reverse repo operation interest rate is reduced by 0.2 percentage points, from the current 1.7% to 1.5%, guiding the loan market quotation interest rate and deposit interest rate to fall synchronously, and maintaining the stability of commercial banks' net interest margin.

The second is to reduce the existing mortgage loan interest rate and unify the minimum down payment ratio of mortgage loans, guiding commercial banks to reduce the existing mortgage loan interest rate to the vicinity of the newly issued mortgage loan interest rate, and the average decline is expected to be 0.5 percentage points.

Unify the minimum down payment ratio of the first and second homes, and reduce the minimum down payment ratio of the second home loan at the national level from 25% to 15%.

The third is to create new policy tools to support the development of the stock market.

Create a special repurchase and increase the re-lending of stocks, guiding banks to provide loans, and support listed companies and shareholders to repurchase and increase stocks.

It is worth noting that this year, the central bank has implemented three major monetary policy adjustments in February, May, and July.

It is reported that after the implementation of this reserve requirement policy, the average reserve requirement ratio of the banking industry is about 6.6%, and there is still a certain space compared with the central banks of the main economies in the world; it is expected that after this policy interest rate adjustment, it will drive the medium-term lending facility (MLF) interest rate to fall by about 0.3 percentage points, and the loan market quotation interest rate (LPR), deposit interest rate, etc.

will also fall by 0.2 to 0.25 percentage points.

The year 2024 is about to enter the last quarter, why did the central bank choose to release new policies at this time?

"On the one hand, it is a full evaluation of the policies of the first quarter of this year.

The monetary policy reflects the line of economic growth in the real economy, which often takes half a year; the monetary policy is also a double-edged sword, whether it has an effect or whether it will have a counter-effect needs to be assessed in time."

Associate Professor Li Nan of Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, pointed out, "On the other hand, maintaining the continuity and predictability of monetary policy has a great impact on the investment environment.

At present, all parties have started to prepare for the work plan for next year, and the release of this policy is very helpful for all governments, departments, and economic units to plan the work for next year in advance."

Li Nan believes that the series of policies released this time, first, reflects the central bank's attitude of continuing to use financial policies to support economic recovery; second, maintains the prudence of monetary policy, and still maintains a prudent attitude in the magnitude of reserve requirement reduction and interest rate reduction; third, emphasizes the precision of monetary policy, and the central bank pays more attention to whether the monetary policy can play an effect.

Overall, this round of monetary policy maintains support in direction, maintains prudence in strength, and focuses on the balance of interests in all aspects.

The central bank's reserve requirement reduction this time has been expected by the market.

Zhou Maohua, a macro researcher in the financial market department of China Everbright Bank, said in an interview with the International Financial News reporter that the central bank's reserve requirement reduction this time is strong, which is helpful to boost the market's confidence in economic recovery.

In addition, the overall interest rate cut is beyond expectation, and the policy releases a strong signal of stable growth.

"Overall, the central bank, through the combination of reserve requirement reduction and interest rate reduction, reasonably injects liquidity, guides the central market interest rate to move down, which is helpful to guide the financing cost of the real economy to move down, stimulate consumption and investment activities; at the same time, the central market interest rate moves down, which is helpful to reduce the financing cost of banks, expand the banks to give up the real economy while maintaining the overall stability of the bank's net interest margin.

In addition, the macro policy support continues to increase, the policy effect is released, the market confidence gradually warms up, demand improves, prices rise, and the economy is expected to enter a virtuous cycle quickly."

Zhou Maohua pointed out, "The long-term, low-cost funds released by the reserve requirement reduction can help banks stabilize the cost of liabilities, optimize the structure of liabilities, and also hedge the maturity of MLF funds, boost the market's confidence in economic recovery, and stabilize the capital market, etc., which has a multi-effect."

In the view of Wen Bin, the chief economist of China Minsheng Bank, this unexpected interest rate cut is mainly due to three considerations: first, the current domestic demand is insufficient, and prices are running at a low level.

Under the weakening of external constraints, policy interest rate cuts and LPR cuts are helpful to reduce the actual financing cost, promote the repair of demand to accelerate and achieve the annual economic growth target; second, the synchronized interest rate cut strengthens the coordination of interest rate policy, which helps to reduce the pressure of deposit disintermediation while stabilizing the bank's interest margin, and maintains the organic balance of the commercial bank's assets and liabilities; third, based on the 7-day reverse repo interest rate, promote the synchronized downward adjustment of the interest rate spectrum, and further smooth the interest rate transmission path from short to long, helping to improve the new monetary policy framework.

It is worth noting that according to the previously disclosed quarterly main regulatory indicators of the banking industry, the net interest margin of the banking industry stopped falling in the first and second quarters of this year, and has been maintained at a low level of 1.54% for two consecutive quarters.

What impact will this interest rate cut and reserve requirement reduction bring to the net interest margin?

"The impact of this interest rate adjustment on bank earnings is neutral, and the net interest margin of banks will remain basically stable."

Pan Gongsheng pointed out at the meeting that the central bank's reserve requirement reduction, medium-term lending facility, and open market operation interest rate reduction will reduce the bank's funding cost, and it is expected that the loan market quotation interest rate and deposit interest rate will move down symmetrically.

Over time, the effect of repricing will accumulate.

At the same time, the existing mortgage loan interest rate will also be adjusted for the second time.

Since the first reduction of the existing mortgage loan interest rate last year, new mortgage discounts have been introduced continuously, and the new mortgage loan interest rate has moved down rapidly, leading to a further widening of the interest rate difference between new and old mortgages.

"Banks reduce the existing mortgage loan interest rate, which is beneficial to further reduce the mortgage interest expenditure of borrowers."

Pan Gongsheng pointed out at the meeting, "We estimate that this policy will benefit 50 million households and 150 million people, and the total annual interest expenditure of families will be reduced by about 150 billion yuan."

Li Yujia, the chief researcher of the Housing Policy Research Center of the Guangdong Provincial Urban and Rural Planning Institute, told the reporter in an interview that the reduction of the existing mortgage loan interest rate this time is not much related to the early repayment tide, and the main reason is the weak domestic demand in the near future, and the recognition of deflation is also a key factor that triggers the reduction of mortgage loan interest rates.

"In addition, this measure also has the consideration of preventing the supply of housing from being cut off."

Li Yujia said bluntly, "At present, those who bear high interest rates are mainly the group who bought houses between 2017 and 2021, most of whom are young people and new citizens who entered the city during the peak period of urbanization in the previous round.

At present, the housing prices in most cities have fallen, and employment is under pressure.

The high interest rate leads to high repayment pressure, and some groups may cut off the supply, which will bring greater risks."

Wen Bin pointed out that compared with the existing mortgage loan interest rate reduction policy in September 2023, this policy has been strengthened in terms of scope and reduction range.

Among them, the scope of application does not distinguish between existing first and second sets, so it is applicable to the entire existing mortgage loan market scale; the reduction range is an average reduction of 50 basis points, exceeding the previous adjustment of the added amount under the policy of different cities.

Therefore, it is expected that this policy to reduce the existing mortgage loan interest rate will further reduce the asset and liability income gap of residents, alleviate the early repayment tide, and stabilize the quantity with a price reduction, which is helpful to stabilize the bank's asset scale and improve the vitality of residents' consumption.

"This reduction in the existing mortgage loan interest rate will be beneficial to the second home loan, and the second will be beneficial to the existing first home loan in key cities, such as first home loans in first-tier cities, Xiamen, Hangzhou, and other areas with higher first home loan interest rates."

Li Yujia pointed out, "Under the background of the downward cycle of interest rates, the existing mortgage loan interest rate may be normalized and reduced to maintain its balance with the incremental loan interest rate.

After the policy is released, the phenomenon of early repayment will also be significantly alleviated.

After this reduction of 50 basis points, the monthly supply of a 30-year mortgage of 1 million yuan will be reduced by 300 to 400 yuan."

"In a word, this round of monetary policy first gives everyone confidence, declaring the consistent attitude of the government, the government has always taken economic growth as the center, has always taken the protection of people's livelihood as the focus, and the government's attitude of supporting economic development is long-term sustainable and predictable."

Li Nan finally analyzed, "The second is precision, the direction of this round of monetary policy is to go to the direction of precision drip irrigation.

Finally, it should also be seen that the trough of the macro economy is an objective law, and it cannot be completely changed by a simple one or two monetary policies.

However, after a series of encouraging policies are sufficient, a policy that may not have a direct logical relationship with market recovery may play a role.

Therefore, this round of monetary policy still needs to be seen in the context of a series of macroeconomic stimulus policies."