Deputy Governor of the People's Bank of China Says "Room Remains for Reserve Requirement Ratio Cut"

Repeated Confirmation of Accommodative Monetary Policy Stance
Experts "Additional MLF and LPR Cuts Within a Few Months"

Amid the U.S. Federal Reserve (Fed) Chair's mention of a rate cut policy this year, the People's Bank of China also reaffirmed its accommodative monetary policy stance, including a cut in the reserve requirement ratio (RRR). Following the effective freeze of the loan prime rate (LPR), which serves as the benchmark interest rate, market attention is focused on additional liquidity supply measures.

Xuanchangneng, Vice Governor of the People's Bank of China, explained recent fiscal and financial conditions at a press conference held by the State Council Information Office on the 21st, stating, "There is still room to lower the statutory reserve requirement ratio." Vice Governor Xuan was newly appointed as a member of the Monetary Policy Committee on the 19th through the reorganization of the Financial and Monetary Committee, alongside Wu Qing, Chairman of the Securities Regulatory Commission.

[Image source=Yonhap News]

At the event, he said, "In the next phase, our country's monetary policy space is sufficient, and various tools are reserved," adding, "The shift in major monetary policies helps expand the operational autonomy of interest rate policies." He further emphasized, "Technological innovation and the implementation of re-lending for it will accelerate the development of advanced manufacturing and the digital economy." In particular, he explained, "We will steadily reduce corporate financing and residents' credit costs," and "Maintain the stability of the yuan exchange rate within a reasonable balance, prevent short- and long-term risks, and maintain internal and external balance."

The People's Bank of China froze the 1-year and 5-year LPRs at 3.45% and 3.95%, respectively, as expected by the market the previous day. This move is interpreted as a response to the favorable economic trends at the beginning of the year, with industrial production and retail sales increasing by 7.0% and 5.5%, respectively, compared to the same period last year in January and February. It also appears to reflect concerns about further depreciation of the yuan.

Julian Evans-Pritchard, Head of China Economics at Capital Economics, told major foreign media, "The yuan has weakened against the U.S. dollar this year, and at this stage, a decline in the yuan's value could trigger additional depreciation pressure." Lin Song, Senior Economist for Greater China at ING, said, "We expect another cut in the Medium-term Lending Facility (MLF) and LPR within the next few months to promote broader economic stimulus policies."

On the same day (local time), the U.S. Fed held its second Federal Open Market Committee (FOMC) meeting of the year, keeping interest rates unchanged for the fifth consecutive time while maintaining the outlook for three rate cuts this year. The key point of this FOMC was the dot plot showing rate projections, with the Fed maintaining the year-end rate forecast at 4.6%. This breaks the market's expectation (two rate cuts within the year) and signals the possibility of three 0.25 percentage point cuts from the current 5.25%?5.5% level.

This content was produced with the assistance of AI translation services.