Pan Gong Sheng: China To Cut Reserve Requirement Ratio

On September 24, the People's Bank of China (the PBOC ) announced that it will soon reduce the bank reserve requirement ratio by 0.5 percentage points, injecting around 1 trillion yuan ($141.81 billion) in long-term liquidity into the financial markets. Pan Gongsheng, governor of the PBOC, said that the central bank will lower its key short-term policy interest rate, reducing the interest rate on 7-day reverse repos by 0.2 percentage points from the current 1.7 percent to 1.5 percent. This move is aimed at guiding downward adjustments in the loan prime rate (LPR) and deposit rates, helping to maintain a stable net interest margin for commercial banks, Pan added. Pan also outlined plans to further support the property market, including reducing the interest rate of existing home loans and unify the minimum down payment ratio for housing loans. The PBOC will guide commercial banks to reduce the interest rate for existing home loans to be close to the interest rate of newly issued home loans. The expected average reduction is about 0.5 percentage points. Besides, the PBOC will unify the minimum down payment ratio for first-home and second-home loans, by reducing the minimum down payment ratio for second-home loans from 25% to 15% in the whole country. In terms of the capital market, Pan announced that the PBOC will support eligible securities companies, funds management companies, and insurance companies to obtain liquidity from the central bank through asset pledge. This will greatly enhance their ability to obtain funds and increase stock holdings. The PBOC will also make a special re-lending scheme, guiding banks to provide loans to listed companies and major shareholders, to support share repurchases and increase holdings of stocks.