Innovative monetary tools to help development of capital market

China's central bank has announced a series of monetary and financial policies to boost the economy and the capital market, including cutting the reserve requirement ratio and policy interest rate to bring down the market benchmark interest rate, lowering interest rates on existing mortgages, lowering the minimum down payment ratio for mortgages of second-home buying to the same as that of first-home buying, and creating new monetary policy tools to support the development of the stock market.

Pan Gongsheng, governor of the People's Bank of China, said at a news conference on Tuesday that the central bank will increase the intensity of monetary policies and improve their precision, to create a good monetary and financial environment for the stable growth and high-quality development of the economy.

The gradual implementation of these policies and the continuous release of their effects are expected to effectively stimulate domestic demand, stabilize the credit level, and promote a steady recovery of the economy. Affected by such policies, China's stock market has bounced robustly, the real estate chain has strengthened across the board, and the renminbi exchange rate has risen steadily.

Since August, the pace of local bond issuance and financing in China has risen significantly, and the net financing scale of local debt in September hit the highest level for a single month this year. Commercial banks, the main issuers of local debt, have thus been under financial pressure. Therefore, the latest cut of 0.5 percentage points, which will provide long-term liquidity of about 1 trillion yuan ($142.37 billion) to the financial market, and the further likely cut of another 0.25 to 0.5 percentage points in the remaining part of the year will reduce the debt cost of commercial banks and supplement their medium and long-term liquidity.

It is important that the RRR cut will release more sufficient long-term liquidity, smooth out excessive capital fluctuations especially at the time when government bond supply is peaking, and strengthen the coordination between monetary and fiscal policies. The RRR reduction will also help optimize the capital structure, save banks' costs, and alleviate the pressure of their net interest margin narrowing to a certain extent, while providing long-term low-cost funds for the banking system, stabilizing credit expansion, and improving their incentive and sustainability of serving the real economy.

The expected new monetary policy tools, which will guide the flow of funds to the stock market, are expected to be a shot in the arm for investors, maintain the stability of China's capital market, and promote its more stable and high-quality development.

-SECURITIES DAILY