Chinese Securities Industry: "Around 200 Trillion Won Likely to Be Released Before Chunje... Possibility of Reserve Requirement Ratio Cut"

Chinese authorities have announced 'more proactive fiscal policies and appropriately accommodative monetary policies' to revive the economy this year, leading local securities firms to predict that the reserve requirement ratio (RRR) could be lowered from the beginning of the year.

According to Chinese media Pengpai on the 3rd, CITIC Securities stated, "Referring to the central bank's operational model around the Chinese New Year (Chunjeong, 春節), we should not rule out the possibility of lowering the reserve requirement ratio before the Chinese New Year at the end of January this year," adding, "Even if the RRR is not lowered, considering the central bank's abundant liquidity management tools and 'appropriately accommodative' monetary policy, there is a possibility of mitigating funding volatility through various tools such as reverse repurchase agreements (reverse repos) and government bond purchases."

Guohai Securities of China also said, "Considering the relatively large funding gap after the Chinese New Year, we believe there is a high possibility of an RRR cut this month," and forecasted, "If the RRR is lowered by 0.5%, about 1 trillion yuan (approximately 200 trillion won) of long-term funds will be released, which can cover interbank funding shortfalls." Jisang Securities noted, "During the Chinese New Year in January, due to factors such as tax payments, government bond issuance, and cash withdrawals for the Chinese New Year, the central bank often lowers the RRR in the same month or in December of the previous year." Last September, the adjustment of the RRR brought the weighted average reserve requirement ratio of Chinese commercial banks to about 6.6%.

Earlier, the Chinese Central Economic Work Conference set this year's economic policy direction as 'more proactive fiscal policies' including raising the fiscal deficit ratio and increasing local government special bond issuance, and 'appropriately accommodative monetary policies' such as lowering the RRR and interest rates. This decision was made considering the continued slump in the real estate market and domestic demand despite successive stimulus measures, as well as the worsening economic outlook due to the upcoming inauguration of the Donald Trump administration in the United States, which has signaled a tough stance on China trade.

China will hold the National People's Congress (NPC), the equivalent of Korea's National Assembly, in Beijing on March 5. At this event, it is expected to announce this year's economic growth target and stimulus measures. Major foreign media including Bloomberg expect China to maintain its economic growth target around 5%, similar to last year. At the end of last year, Bloomberg reported that the Chinese leadership plans to keep the economic growth target around 5% this year while raising the fiscal deficit target to 4% of GDP, which is 1 percentage point higher than last year.