On April 15, according to the news on the website of the people’s Bank of China: in order to support the development of the real economy and promote the steady decline of comprehensive financing costs, the people’s Bank of China decided to reduce the deposit reserve ratio of financial institutions by 0.25 percentage points on April 25, 2022 (excluding financial institutions that have implemented the deposit reserve ratio of 5%). In order to increase the support for small and micro enterprises and “agriculture, rural areas and farmers”, for urban commercial banks without inter provincial operation and agricultural commercial banks with deposit reserve ratio higher than 5%, an additional 0.25 percentage point will be reduced on the basis of reducing the deposit reserve ratio by 0.25 percentage point. After this reduction, the weighted average deposit reserve ratio of financial institutions is 8.1%.

The RRR reduction is a response to the continuous requirements of the two national standing committees for monetary policy tools to increase support for the real economy since April 6.

At present, China urgently needs to introduce effective measures to hedge the weak recovery of the global market under the influence of the epidemic. COVID-19 and geopolitical risks continue to impact both ends of supply and demand, and the world bank has cut its global economic growth by 0.2 percentage points in 2022.

In the face of the complex international situation and the increasingly steep steady growth curve under various constraints, the 2021 central economic work conference also clearly proposed that the economic work in 2022 should be stable and seek progress while maintaining stability. This year’s government work report mentioned “steady growth” many times, and made it clear that steady growth should be put in a more prominent position in 2022.

The reasons for the central bank’s RRR reduction are very sufficient. Under the influence of epidemic factors, the flow of local production factors affects the supply chain and consumption, and makes the total supply (as) and total demand (AD) curve of the whole society move to the left, thus affecting the supply-demand equilibrium point of the whole economy. Therefore, further expanding effective investment and consumption and stimulating aggregate supply and aggregate demand to a new and higher level of equilibrium are obviously the best strategy for formulating macroeconomic policies.

It is worth emphasizing that, perhaps different from the traditional cognition, the published work reports of local governments predict the trend of this steady growth path. Under the two rigid constraints of “moderately ahead layout of major infrastructure” and “no speculation in housing and housing”, the driving points of steady growth mainly focus on promoting common prosperity, deepening factor market-oriented reform, improving the level of urban-rural integration, realizing coordinated regional development, promoting consumption Develop strategic emerging industries, promote the transformation and upgrading of traditional industries and prevent systemic risks.

It is not difficult to find that China’s steady economic growth this time does not follow the old road of “iron public foundation”, but pays more attention to the implementation of the concept of “innovation, coordination, green, openness and sharing”. These subjects who promote the implementation of the new development concept happen to be the main representatives of the innovative economy. Under China’s existing financing system dominated by indirect financing mode, these innovative subjects are difficult to get sufficient support from bank credit. This RRR reduction timely responds to the demand of the market.

Considering the impact of currency multiplier, the RRR reduction is expected to release 530 billion yuan of long-term funds to the market. On the one hand, it will greatly alleviate the effective demand and investment reduced by the impact of the epidemic, so as to promote the social aggregate supply and aggregate demand curve to move to a higher equilibrium range by providing more funds to the market. On the other hand, the lower financing cost also makes it easier for innovation subjects to obtain financial element support, so as to help China’s economy seize opportunities and explore a new path of innovative growth.

From this perspective, the RRR reduction is at the right time. It should be noted that an international environment for the central bank’s RRR reduction this time is the overall contraction of the Federal Reserve’s monetary policy. Without fear of the direction of the Fed’s monetary policy, adhering to a prudent monetary policy is more active and effective, which fully shows that the resilience of China’s economy against external interference is increasing.

On the whole, China’s economy is facing the triple pressure of shrinking demand, supply shock and weakening expectations. The people’s Bank of China will continue to maintain stability and seek progress in stability, continue to implement a prudent monetary policy, do not engage in flood irrigation, give consideration to internal and external balance, give better play to the dual functions of the total amount and structure of monetary policy tools, and maintain reasonable and abundant liquidity, Keep the growth rate of money supply and social financing scale basically match the economic growth, stimulate market vitality, support financing in key areas and weak links, and create a suitable monetary and financial environment for high-quality development and supply side structural reform. Therefore, with the strong monetary policy support of the central bank, it is worth looking forward to China’s economy walking out of a confident and stable growth curve.