SCIO briefing on maintaining financial market stability during COVID-19 epidemic
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E-mail SCIO, March 25, 2020
Reuters:
Recently, the Federal Reserve of the United States lowered the interest rate to zero and restarted QE (quantitative easing). Will the People's Bank of China further relax its monetary policy? Is there the space for reducing the interest rate and cutting the reserve requirement ratio? And how will China defend against the imported financial risks? Thank you!
Chen Yulu:
Thank you for your questions! As we all know, since the epidemic broke out around the world, many countries have rolled out moves to increase liquidity and lower financing cost for the real economy, involving slashing interest rates dramatically, and of course, some countries, to maintain the stability of their currencies, have raised their interest rates.
Since the novel coronavirus outbreak, China has left no stone unturned to support the epidemic prevention and control efforts as well as work and production resumption based on its domestic situation and in light of the existing policy framework. In terms of the implementation of monetary policies, first, the RMB 330 billion of special re-lending has supported more than 5,000 key enterprises in the epidemic prevention and control campaign. And loans granting to enterprises at preferential interest rates have amounted to RMB 200 billion with the actual financing cost accounting for around 1.26 percent of the sum. In addition, we've added RMB 500 billion re-lending and rediscount quota to buttress the medium, small, and micro businesses to resume work and production; the accumulated sum of the issued loans has surpassed RMB 130 billion with the loan interest rate obviously lower than the State Council's requirement of 4.55 percent. Second, as we are actively guiding the trend of interest rate dropping, the actual loan interest rate for companies has also decreased evidently. In February, the interest rate for ordinary loans stood at 5.49 percent, dropping by 0.61 percentage points over that before the Loan Prime Rate (LPR) reform. Hence, supported by the structural monetary policy, the policy on increasing liquidity, and the policy on guiding the downward trend of the market interest rates, our country's real economy has shown marginal improvement. Based on available data on payment and settlement since March, as well as the changing dynamic of loans and deposits, China's real economy has shown a sustained improvement. It's expected that in the second quarter, remarkable improvement will manifest in various economic indicators. China's economic growth will soon be back on the track of normal potential output.
As for the direction of our monetary policies in the next stage, the following aspects will be our focus: First, we'll ensure our monetary policy is effective, acceptable to the market, and be carried out at a proper pace, so as to maintain the reasonable adequacy of liquidity. We'll pay special attention to the goal that the broad money (M2) supply and nongovernmental financing scale increase in tandem with the GDP growth in nominal terms. The former two can be slightly higher. We can see that in February, M2 increased 8.8 percent year on year, and the nongovernmental financing scale stock climbed by 10.7 percent. The two indicators have fully embodied the orientation of our monetary policy.
Second, we'll bring the unique role of the structural monetary policy into full play. We're guiding the financial institutions to give more credit support to the key enterprises of the industrial chain as well as medium, small, and micro firms and private companies in the upper and lower sections of the industrial chain with the packages like the RMB 300 billion special re-lending, the addition of RMB 500 billion re-lending and rediscount quota. In addition, our structural monetary policy also covers targeted cuts to required reserve ratios and extra targeted cuts to required reserve ratios for joint-equity banks, to stimulate and guide the related institutions to play their roles. Next, we'll pay attention to the implementation of those policies.
Third, we'll bring the role of policy-based finance into full play. We'll effectively take advantage of the RMB 350 billion special credit quota of policy banks to extend great credit support with the preferential interest rate to medium, small, and micro firms and private companies for their work and production resumption, key sectors like spring tillage, pork production, and foreign trade, and particularly production of products in the international supply chains.
Fourth, we'll intensify capital supplement to small and medium banks and support them in issuing bonds in order to further stimulate and improve commercial banks on the whole to deliver loans.
Finally, we'll continue to advance the LPR reform, so as to guide the real interest rate of loans dropping further. We'll actively guide the banking system to provide more benefits to the real economy, thus achieving the win-win situation of stabilizing both the economy and the financial market. Thank you!
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