PBOC Governor Pan: RRR could be further reduced by year-end depending on market liquidity

People's Bank of China (PBOC) Governor Pan Gongsheng said on Friday that the Chinese central bank “provided specific directions for stock buybacks and reloans to increase holdings, and it is the bottom line that credit funds cannot enter the stock market in violation of regulations.”

Further comments

Central bank's provision of stock buyback and additional purchase re-loans has specific directional aims, and a fundamental bottom line is that loan funds must not unlawfully enter the stock market.

The two tools to support the stable development of the capital market are entirely based on market-oriented principles, and swap facility is not direct financial support from central bank.

Expected that depending on the market liquidity situation by the end of the year, the reserve requirement ratio (RRR) could be further reduced.

To achieve dynamic balance, macroeconomic policy should shift from investment-focused to balancing both investment and consumption.

Monetary policy framework will be further improved, with a focus on achieving a reasonable rise in prices as a key consideration.

Depending on market liquidity, reserve requirement ratio could be further reduced by 0.25 to 0.5 percentage points before the end of the year.

The interest rate of 7-day reverse repo operation in the open market will be lowered by 0.2 percentage points.

Interest rate of medium-term lending facilities could be reduced by 0.3 percentage points, depending on market liquidity.

It is expected that the loan market prime rate (LPR) could also fall by 0.2-0.25 percentage points.

Meanwhile, China’s central bank announced that it launched a swap facility for securities, funds and insurance companies on Friday.

Additional takeaways

Currently, 20 securities and fund companies are approved to participate in the swap facility operation, with the first batch of application quotas exceeding 200 bln yuan.

Officially launched the securities, fund, and insurance company swap facility (SFIFS) operation starting today.