Will interest rates be cut again after the RRR cut? Liu Ying, Chongyang, National People's Congress: Several RRR cuts and interest rate cuts this year can be expected

　　China Net Finance, January 31 (Reporter Li Chunhui) Not long ago, the central bank "officially announced" the first RRR cut in 2024: the deposit reserve ratio will be lowered by 0.5 percentage points on February 5, which exceeds market expectations. There is a view that this means that the implementation of monetary policy has been strengthened, and the follow-up force is worth looking forward to.

　　Will interest rates be cut again after the RRR cut? Is the unexpected RRR cut at this time aimed at saving the stock market and the property market? How to grasp the timing and rhythm of the RRR cut? The "Financial Interview" column of China.com Finance interviewed Liu Ying, director of the cooperative research department of the Chongyang Institute for Financial Studies of Chinese University.

A larger and more comprehensive interest rate cut can be expected China.com Finance

: We noticed that a few days ago, the National People's Congress Chongyang released an article suggesting "a sharp interest rate cut as soon as possible", which caused a big response. Then, on the 24th, the central bank suddenly announced that it would reduce the reserve requirement ratio by 0.5 percentage points on February 5. Do you think interest rate cuts should continue after the RRR cut?

Liu Ying

: I think there is a need for a rate cut. While revealing the RRR cut on February 5, the central bank also announced a 25 basis point drop in the interest rate on re-lending and re-discounting loans to support agriculture and small enterprises on January 25. This targeted interest rate cut is a structural arrangement, and in the context of increasing the policy of stabilizing expectations, steady growth, and stable employment, a larger and more comprehensive interest rate cut can be expected this year.

　　It is very important to grasp the timing of the RRR and interest rate cuts. At this time, the central bank announced a RRR cut + targeted interest rate cut in line with market demand.

　　February 5 is before the Spring Festival, whether it is the pre-holiday enterprises to pay wages and bonuses, residents to concentrate on cash consumption, or the beginning of the year to start construction of large projects, there is a large demand for funds. At this time, the RRR cut was announced, first of all, to meet the demand for market liquidity.

　　On the other hand, the RRR cut is the largest in recent years, directly releasing 1 trillion yuan of long-term liquidity, exceeding the scale of the two RRR cuts last year. Such a large-scale RRR cut is a boost to market confidence, especially at the moment.

　　2023 is a year of economic recovery and development after a three-year transition in the prevention and control of the new crown epidemic. Our cycle has not yet been fully opened, and our economy is moving towards returning to the normal track and achieving potential growth rate, which was not easy to come by last year's growth rate of 5.2%. Our consumption habits and consumption structure need time to recover and improve, or the situation of the stock market in the past few days, everyone especially needs to boost confidence.

　　Therefore, this "first drop" at the beginning of the year, we think that its strength, fast rhythm, and accurate grasp of the node are all worthy of praise.

　　There may be multiple RRR and interest rate cuts in 2024, which I think are all expected. The reason is that no matter whether we compare horizontally or vertically, we have room to cut interest rates and reserve requirements.

　　From an international point of view, the United States and Europe have begun to enter a cycle of interest rate cuts. No matter how much or how often it cuts interest rates, it is a relatively good external environment for us. The cyclical differential between our monetary policy and that of advanced economies is converging, and the pressure on our spillover from US and European monetary policies is decreasing.

　　From a domestic point of view, the mainland's price level is running at a low level, and the CPI growth in December last year was negative, which provides ample policy space for a wider range of RRR and interest rate cuts. At present, our statutory reserve requirement ratio is 7.4% and the 1-year MLF (Medium-term Lending Facility) rate is 2.5%, both of which have room for downward adjustment.

　　The plan of the year lies in the spring, and the major market players are full of energy to "wait for the dragon to come" and want to do a big job in the year of the dragon. The policy of RRR and interest rate cuts was launched at the beginning of the year, and we will be more confident to increase investment and consumption.

China.com Finance

: How do you predict the timing of the next interest rate cut?

Liu Ying

: I think we need to be "timely and moderate", and we can push forward with more intensity and more combinations. We need to intensify cross-cyclical and counter-cyclical adjustments. There is not only aggregate but also structural monetary policy, and there are various innovations and uses of monetary policy tools that have shifted from quantitative to price-based. That is, according to the situation of our economic development and the feedback of economic data, we should further promote the rhythm of RRR and interest rate cuts, and grasp the intensity, especially to pay attention to the coordination of monetary policy and fiscal policy. In fact, not only fiscal policy, but also industrial policy, social policy, regional policy, and employment policy should be coordinated to strengthen the consistency of macroeconomic policy orientation, which was also put forward at the Central Economic Work Conference.

　　The real goal of our monetary policy measures such as RRR and interest rate cuts is to push real interest rates lower, that is, the steady decline in the financing cost of the real economy. How to let the liquidity released by the RRR and interest rate cuts fall to the real economy, instead of allowing funds to circulate within the financial system, this is the most critical. Let the monetary transmission mechanism be smoother, so that these funds can really reach the real entity, so that the real economy can achieve growth.

　　Even if it is a boost to the stock market, it does not mean that after these long-term liquidity are released, they will directly invest in the stock market. It is to truly let these funds be given to entities and enterprises, so that enterprises can use these funds to achieve profits, and then improve the quality of listed companies. The most fundamental thing in the stock market is to rely on listed companies to improve their profitability, so that investors can make profits, and the stock index can further rise, which depends on the growth of the real economy.

Worrying about the occurrence of "four trillion" side effects is groundless China.com Finance

: You just mentioned that monetary policy may have to be more aggressive this year to stabilize growth. When it comes to increasing monetary policy, some netizens may think that it is not necessary to "release water", and then think of the "flood irrigation" of "four trillion" in 08. Do you think that if we increase our efforts in counter-cyclical adjustment, how can we avoid the sequelae of "four trillion" similar to 08?

Liu Ying

: We must consider the possible side effects of multiple RRR and interest rate cuts. But if you think about whether there will be a situation of four trillion in 08, I think it is a bit unfounded.

　　The reason for this is that there were two completely different situations then and now. In 08, China has not yet become the world's second largest economy, and its global share and development mode are different. At that time, it was still an export-oriented economy, and its dependence on external demand was still very high. At that time, there was a global financial tsunami in the external environment, which caused a rapid and great impact on us, and our market and our enterprises were actually "mourning all over the country". At that time, after the decision-making department came back from the investigation, it proposed that our policy should be fast and heavy, and four trillion yuan is the bailout policy.

　　And the 4 trillion yuan policy we launched at that time was basically the same as the scale of bailouts in the world's major economies. The G20 held the largest number of leaders' summits in 2008 and upgraded the central bankers' meeting to a leaders' summit to save the market. At that time, the $4 trillion we launched was the same as the $780 billion launched by the United States, including some countries such as the United Kingdom. At that time, we were not only saving our own domestic enterprises and the domestic economy, but also helping to save the American economy and finance. The '08 financial crisis originated on Wall Street in the United States and spread to the world. If the U.S. economy and finance can't save it, the global financial crisis may be even more serious. So the four trillion at that time we can understand it this way.

　　On the other hand, I also suggested at the time that there is no problem with the launch of four trillion yuan, but it must be promoted steadily. Of course, everyone may be a little anxious, some preparations have not been done well, and some projects may not even have done a good enough feasibility study, so they will be released, resulting in a series of problems such as overcapacity in the future. And this is a problem in the process of policy implementation, and it is different from the four trillion policy itself, and we have to look at it dialectically. Whether we need to launch more pro-growth measures at the moment can be discussed.

　　For the four trillion measures of that year, we need to evaluate objectively. To evaluate any policy, we must look at its background at the time and its historical decisions. When I was doing macroeconomic analysis, I saw that the global economy, including China, was falling off a cliff, and after the introduction of these bailout policies, our economy quickly reversed, and the global economy also saw a V-shaped rebound, and the facts proved that this policy was effective. As for the follow-up impact of the policy, we need to see whether there are problems in the way and means in our implementation process, and whether there are problems in the implementation of the policy. In other words, similar negative effects can be avoided in the course of specific operations.

The RRR and interest rate cuts cannot be simply understood as saving the property market China.com Finance

: Now the real estate market is still in the process of adjustment, and housing prices have been falling, and there is no sign of "bottoming". Judging from the experience of the past few years, almost every time the RRR and interest rate cuts are cut, housing prices will rise in waves. Some netizens think that this RRR cut is not to save the real estate market? What do you think? If we increase countercyclical adjustment in the future, what impact will it have on the establishment of a long-term real estate mechanism?

Liu Ying

The RRR cut will definitely contribute to the stability and recovery of the real estate market, and will definitely help the development of the real estate market, while a larger RRR cut and interest rate cut will help build a long-term mechanism. But as for whether this RRR cut is just to save the housing market, I don't think so.

　　For the current real estate market, I don't think the market has been cleared yet. I even think that the supply-side structural reform of real estate will play an important role in the current situation, and the three major projects such as affordable housing, which is called the "second housing reform".

　　The ancients said that "there are tens of thousands of spacious buildings, and the poor people in the world are happy", and the role of affordable housing is very important. For example, some young people are just starting out in employment and don't have much money to buy a house, so there needs to be a transition period. Whether it is leasing or renting and selling, they need to ensure their housing needs.

　　The construction of a long-term real estate mechanism needs to be grasped with both hands. On the one hand, the mayor will manage the affordable housing, and the three major projects such as affordable housing should be more accurate and powerful, on the other hand, the market will manage the commercial housing, and the commercial housing will be managed by the market. The level and fluctuation of housing prices, the regulatory authorities should not care about it and let it fluctuate freely.

　　Although the RRR and interest rate cuts are not to save the property market, it does not mean that we underestimate the real estate market. On the contrary, we need to pay close attention. The real estate industry is still a pillar industry of the national economy, and in the past few years, this industry alone can contribute to the growth of GDP by two percentage points, and it has also stimulated fifty or sixty upstream and downstream industries, and is deeply nested with the land finance and financial system.

　　At present, we emphasize the transformation of economic growth mode, structural adjustment, cultivation of new momentum, etc., all based on establishing first and then breaking down. It cannot be said that it is absolutely not okay to give up real estate when new momentum, new industries and new forms of business have not fully grown into pillar industries, which may bring systemic risks.

　　The RRR and interest rate cuts will help promote the establishment of a long-term mechanism for real estate, but it is not to let these liquidities go directly to the property market to buy houses and support the bottom, but to say that real estate companies can improve the credit environment and support the circulation of real estate like other real economy enterprises.

　　For the current problems in the real estate industry, I think the top priority is to ensure the delivery of the property. The guaranteed delivery building is connected to the people's livelihood at one end, banking institutions at the other end, local bonds at the other end, and the construction industry and real estate enterprises at the other end, which is a core node. Through the efforts of all parties to ensure the delivery of buildings, the houses are handed over to the people, and the people will go to decorate, purchase household appliances, etc., which not only stimulates bulk consumption, and then stimulates the upstream and downstream industries of real estate, but also helps solve local debts and reduce financial risks.

It is conducive to stimulating consumption and investment China.com Finance

After the epidemic, residents' consumer confidence is relatively low, and their willingness to save is relatively strong, what role do you think the current monetary policy will play in boosting consumer confidence?

Liu Ying

There is no doubt that the RRR and interest rate cuts will help boost consumption. In the first two years, when the economy was not good, people may be inclined to cash and save money. As interest rates come down, people will take the money out of the bank to spend or invest.

　　This year's Central Economic Work Conference proposed to "do more if you can". For us ordinary people, "doing more" means working more and getting more, and if you can earn more, you can earn a little more, and of course spend a little more.

　　From the perspective of the demand side, the starting point of economic growth is consumption, investment, and net exports. Exports are like "watching the sky to eat" - watching the outside needs to eat. But whether a country's economy is strong or not depends mainly on domestic demand, mainly on your own market, not on external demand.

　　Consumption is the most important driver of economic growth. Our economy has gradually shifted from export-oriented to investment-led, factor-input-based, and further to innovation-driven. In 2023, the contribution rate of consumption to economic growth will be as high as 82.5%, but it is not enough, and the role of consumption in driving economic growth can be further enhanced.

　　Of course, consumption and investment are complementary to each other, effective to each other, and even two sides of the same coin. Consumption also needs to be driven by investment. We need to rely on the construction of a unified national market to break down the barriers to local protection, which is also an important measure to stimulate investment.

China.com Finance

: You just mentioned that the core objective of monetary policy is to lower real interest rates. So what are the benefits of lowering real interest rates for the manufacturing industry and the real economy, and how can we achieve a reduction in real interest rates?

Liu Ying

: There is a theory that the level of interest rates also represents a degree of civilization. From the perspective of the development of the real economy, the core goal of promoting growth is to reduce the real interest rate, that is, to reduce the actual financing cost, and to reduce the interest rate level of the funds that the manufacturing industry and the real economy really get.

　　Therefore, it is necessary to open up the transmission mechanism of monetary policy, so that the real economy can effectively obtain low-cost financing. It is not that after banks and financial institutions get low-cost liquidity through RRR and interest rate cuts, they rotate in the system, and then come out to give the real economy still relatively high interest rates, which is not our original intention of cutting interest rates and RRR requirements.

　　At present, China's economy needs to solve the problem of difficult and expensive financing, not only for small and medium-sized enterprises and private enterprises, but also for all enterprises. This is our need to promote economic growth, and it is also the source of finance - financial services for the real economy, and it is a very important aspect of accelerating the construction of a financial power.