After 9 months, the Federal Reserve has resumed interest rate cuts. The Federal Reserve announced on September 17th that it will lower its target range for the federal funds rate by 25 basis points to between 4.00% and 4.25%. With the resumption of interest rate cuts by the Federal Reserve, the external constraints faced by China's monetary policy have weakened. The operational space of monetary policy is expanding, and its autonomy is expected to be further enhanced. Analysts believe that a "me first" monetary policy operation will be more relaxed. Balancing "internal and external" and "stable growth and risk prevention", China's monetary policy will adhere to a supportive stance and provide strong support for stable growth. It is expected that reserve requirement ratio cuts and interest rate cuts may still be possible within the year, but considering internal constraints such as pressure on bank interest rates, reserve requirement ratio cuts may be better than interest rate cuts. Space expansion: external constraints on monetary policy are reduced. The Fed's interest rate cut means that the constraints of external factors on China's implementation of a 'moderately loose monetary policy' are weakened, and the future monetary policy will still adhere to the principle of 'self centeredness'. ”Wang Qing, Chief Macro Analyst of Dongfang Jincheng, stated in an interview with Shanghai Securities News. The adjustment of monetary policy by the Federal Reserve often has spillover effects on the monetary policies of other countries. Looking back, due to the misalignment of economic cycles, the monetary policy cycles of China and the United States have not been completely synchronized since 2017. ”Xiong Yuan, Chief Economist of Guosheng Securities, told Shanghai Securities News reporters that after the Federal Reserve initiates another interest rate cut, the monetary policy cycles of China and the United States will further align. This will expand the operational space of China's monetary policy while enhancing the autonomy of monetary policy operations. Analysts believe that China's monetary policy will "loosen" some external constraints as a result. According to Luo Zhiheng, Chief Economist and Dean of the Research Institute at Yuekai Securities, the Federal Reserve's interest rate cuts have led to a decline in US bond yields, putting pressure on the US dollar and easing the pressure on the RMB exchange rate. External constraints on monetary policy are gradually easing, and policy space is gradually opening up. Before and after the implementation of the Federal Reserve's interest rate cut "boots", the US dollar index fell below the "97" mark, hitting a low of 96.2179, and the onshore RMB exchange rate against the US dollar rose to 7.1056 at one point. Against the backdrop of changes in interest rate spreads and a weakening of the US dollar index, non US currencies including the Chinese yuan are expected to appreciate. ”Pang Ming, a specially appointed senior researcher at the National Finance and Development Laboratory, told Shanghai Securities News reporters that in recent times, China's overall economic operation has been stable, the attractiveness of RMB assets has increased, and more foreign capital has flowed into the allocation of RMB assets, driving an increase in demand for foreign exchange settlement and promoting RMB appreciation. These factors are also conducive to the marginal relaxation of financial conditions and the improvement of policy transmission environment in China. Moreover, the Federal Reserve may continue to cut interest rates before the end of the year. The pressure on the interest rate differential between China and the United States and the pressure on the RMB exchange rate are expected to continue to ease, bringing a more relaxed external environment to China's monetary policy. China's monetary policy adjustment space will be greater, "said Dong Ximiao, Chief Researcher of the China Merchants Association, in an interview with Shanghai Securities News. In the next stage, China's monetary policy will still adhere to the principle of" taking the lead ", balancing internal and external factors, and continue to implement a refined and moderately loose monetary policy. There is a high possibility and certain space for reserve requirement ratio cuts and interest rate cuts, and reserve requirement ratio cuts are better than interest rate cuts. Internal constraints: The pressure of interest rate differentials restricts the space for interest rate cuts. The implementation of a country's monetary policy often requires balancing internal and external factors. After the Federal Reserve initiates a new round of interest rate cuts, compared to external constraints such as exchange rates and internal factors such as pressure on bank interest rates, the potential "constraints" on China's monetary policy are greater, which may affect the space for further interest rate cuts. Wang Qing believes that the internal constraints currently faced by China's monetary policy operations may include three aspects: first, retaining necessary policy space; The second is to maintain a reasonable net interest margin, safeguard the operational stability of the banking industry, and support the sustainability of the real economy; The third is to avoid "flooding" and prevent financial resources from flowing into inefficient "old kinetic energy" areas. In the second quarter, the net interest margin of commercial banks once again fell to a new low of 1.42%. Cao Jing, deputy researcher at the Institute of Finance of the Chinese Academy of Social Sciences, told Shanghai Securities News reporters that financial institutions led by banks are a key link in the transmission of monetary policy. The current net interest margin of banks has significantly narrowed, which will constrain the room for interest rate cuts. In addition, the macro leverage ratio continues to passively rise, and moderate easing of monetary policy requires grasping the "degree" of the increase in macro leverage ratio to avoid accumulating financial risks. The operational approach of reducing reserve requirement ratio is better than cutting interest rates, and it is easier to balance stable growth and risk prevention. ”Pang Ming believes that during the stage when effective social demand is under pressure, residents and businesses have relatively low elasticity towards interest rates, and simple interest rate cuts have limited effects on driving consumption and investment. Therefore, it is necessary to rely more on the synergy between structural policies and fiscal and monetary policies to improve the multiplier effect. Pang Ming judged that although the external environment is more relaxed, it is expected that China's monetary policy will still focus on the goal of "stabilizing growth and preventing risks", adhere to the principle of "giving priority to ourselves", increase countercyclical adjustment efforts, and use quantitative and structural tools at the right time to avoid a one-time, substantial and comprehensive interest rate cut that will lead to banks facing greater net interest margin pressure and asset foam risk. Looking ahead to the future: There is still room and possibility for reserve requirement ratio cuts and interest rate cuts. "Since the beginning of this year, the People's Bank of China has adhered to a moderately loose monetary policy tone, effectively supporting the stabilization and recovery of the economy and stabilizing the operation of financial markets through a combination of reserve requirement ratio cuts, interest rate cuts, and open market operations. ”The Chief Economist of CITIC Securities, Mingming, told a reporter from Shanghai Securities News. Analysts believe that looking ahead, considering the difficulties and challenges that China's macroeconomic development still faces, there is still room and possibility for reserve requirement ratio cuts and interest rate cuts. From an internal perspective, the main contradiction in the current economy is the supply-demand imbalance caused by insufficient effective domestic demand. ”In his research report, Luo Zhiheng suggested that macro policies should continue to increase their efforts to boost household consumption and corporate investment demand. Cao Jing judged that the macro-economic and financial data of the third quarter showed that the momentum of economic growth had weakened, and the monetary policy was expected to reduce the reserve ratio and interest rate again, restart the trading of treasury bond bonds by the central bank, and support the financing of the real economy and active fiscal expansion. Regarding the reserve requirement ratio reduction, Dong Ximiao stated that after the reduction in May this year, the weighted average reserve requirement ratio of financial institutions in China was 6.2%, which is still at a relatively high level among major economies. It is expected that in the third and fourth quarters, the People's Bank of China may lower the reserve requirement ratio by 0.25 to 0.5 percentage points, timely inject long-term liquidity into the market, and further optimize the liquidity term structure. Regarding interest rate cuts, Xiong Yuan believes that the current economic development still faces challenges, indicating an increased necessity and possibility of policy "timely strengthening", and the possibility of interest rate cuts in the fourth quarter is also increasing. The trend of fundamental indicators is a key variable that determines the pace and magnitude of interest rate cuts. In terms of policy coordination, Pang Ming predicted that the fiscal and monetary policies are expected to further strengthen coordination, better coordinate the management of government bond issuance, the central bank's treasury bond bond trading operations and improve the offshore RMB treasury bond bond issuance mechanism, so as to form closer cooperation under the goal of "four stability". Analysts say that considering the transition of China's economy to a medium to high growth stage, the high leverage ratio of residents, and the slowdown in credit demand, the focus of monetary policy should be on optimizing the structure. The focus of future structural guidance is to leverage the advantages of efficient resource allocation in the market and stimulate the endogenous motivation of financial institutions. Structural monetary policy tools can continue to play a leading role, enhancing the ability and willingness of financial institutions to support key areas. (New Society)