The government had a regular meeting and decided to reduce the targeted reserve requirement ratio (RRR) for small and medium-sized firms (SMEs) if needed, but it did not rule out using other monetary policy tools to assist SMEs. ING economists expect that such a decrease will be implemented soon.
“The weakening of the CNY against the US dollar as a result of the targeted RRR drop contrasts with Fed statements of tapering and rate hike timing. Today’s market movements may reflect this.”
“When stated and perhaps reported with a timeline or restrictions, this policy could be temporary.”
“Following the announcement of the targeted RRR drop, SMEs in China should be able to obtain more loans from banks at lower interest rates. Banks’ loan policies for SMEs, on the other hand, are unlikely to be loosened.”
“Some SMEs may be less eager to take out micro-loans through fintech platforms, which were formerly the most common source of financing for SMEs because to their more lenient credit policies for SMEs compared to banks, despite the fact that they charge higher interest rates.”
“A reduction in the intended RRR for SMEs merely decreases the cost of lending to SMEs for banks. That means that even if the RRR is reduced, not all SMEs will be able to obtain loans from banks. Even in the face of adversity, some SMEs would continue to function.”
“Overall, the survival rate of SMEs could rise moderately, helping to stabilize jobs and economic growth.”
“Following the release of the policy, we may modify our GDP prediction. We’ve changed our USD/CNY forecast to 6.55 at the end of 3Q21 and 6.45 at the end of 4Q21.”/n
