Stimulus package increases liquidity and boosts confidence

China's central bank on Friday cut the reserve requirement ratio for financial institutions by 0.5 percentage points and lowered the seven-day reverse repo interest rate by 20 basis points, enhancing policy support to solidify economic operations.

From Friday, the weighted average RRR for lenders will be approximately 6.6 percent, but those that have already implemented a 5 percent RRR will not be involved, according to a statement from the People's Bank of China.

The move followed an RRR cut of 0.5 percentage points in February. The 1-percentage-point RRR reduction so far this year is expected to provide about 2 trillion yuan ($285.3 billion) in long-term liquidity for the financial market.

The seven-day reverse repo interest rate, a key short-term policy rate, was lowered from 1.7 percent to 1.5 percent on Friday, according to the central bank, the largest cut in four years. The move aims to intensify the countercyclical adjustment of monetary policy and support the country's stable economic growth.The seven-day reverse repo interest rate has fallen by a cumulative 30 basis points so far this year.

In addition to releasing long-term liquidity, the RRR cut will help push the market interest rate level down further. Under the condition of certain capital demand, the RRR cut, along with other policy monetary tools such as interest rate cut, medium-term lending facility rate cuts, open market operations, etc., can help push the actual interest rate down continuously.

The adjustment of the policy interest rate will lead to a reduction in the medium-term lending facility rate, and the loan market quotation rate and deposit rate will also decline accordingly. That can help reduce the overall financing cost of society.

In addition, as the governor of the central bank indicates, the central bank may cut the reserve requirement ratio twice or even three times this year depending on the liquidity situation.

All these moves and signs reflect the strengthening of monetary policy regulation in a bid to boost the confidence of all parties and relieve the many potential risk pressures in the market.

China's A-share market has ushered in a strong rebound following the release of this stimulus package, with both the stock market and the foreign exchange market rising, demonstrating a recovery in investment confidence in the capital market.

The widely anticipated continuous liquidity in the financial market promotes the market's imagination and is conducive to boosting market confidence.

Subsequent fiscal policies may focus on helping low- and middle-income groups, boosting the trend of consumption upgrading, and improving the efficiency of fiscal stabilization of growth.

These new moves are expected to contribute to reversing the expectations of the property market and help boost the recovery of the property market that is of strategic importance to the fitness and growth of the Chinese economy.