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Lian Ping, chief economist of Bank of Communications of China (601328.SS) (3328.HK), pointed out that both nominal and real interest rates in China are at historically and internationally low levels. The effect of further substantial interest rate cuts is limited and constrained by multiple factors. The promotion of interest rate marketization will help to improve the quality and efficiency of monetary policy. Structural problems can be well solved.
Lian Ping was quoted by China Securities Daily on Tuesday as saying that there is room for further easing of monetary policy in the future, but its space is constrained. In fact, since the second half of 2018, the target of total counter-cyclical adjustment of monetary policy has been basically achieved, and the reasonable liquidity and interest rate level have been significantly reduced. The current difficulties or tasks for the next stage are mainly structural.
In the future, monetary policy should maintain two basic points: one is to maintain a reasonable and abundant liquidity; the other is to push interest rates down further. The main task is to use structural tools to make efforts to increase the flow of low-cost funds into the real economy.
He said that China's deposit reserve ratio has reached an average level of 11% after several downgrades. Considering the excess reserve ratio, it is not high in the world and there is little room for downward adjustment.
If macro-economy encounters tremendous shocks in the future, monetary policy can continue to be moderately relaxed. As China's balance of payments gradually tends to be balanced, the level of deposit reserve ratio is still likely to decline further in the future. However, with the promotion of interest rate marketization, the use of price-based tools to regulate and control will gradually become the main way of monetary policy regulation.
Lian Ping believes that considering the high level of macro-leverage, it is impossible for the stable leverage policy to change fundamentally in the next stage. In the case that leverage level has risen again, further easing of monetary policy risks greatly raising leverage level, which runs counter to the policy of deleveraging or stabilizing leverage, and is therefore unrealistic.
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