The central bank lowered the deposit rate by 0.5 percentage points, and monetary policy shifted across the board.

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The people's Bank of China decided today to reduce the RMB deposit reserve ratio of deposit financial institutions by 0.5 percentage points from December 5, 2011. Since the beginning of 2010, the People's Bank of China has raised the deposit reserve ratio 12 times in a row and raised interest rates five times. The overall reduction of the deposit reserve ratio of financial institutions is the first reduction in three years, which means that China's tightening monetary policy has officially shifted.

After the cut, the deposit reserve ratio of China's large financial institutions will fall from an all-time high of 21.5 per cent to 21 per cent, while that of small and medium-sized financial institutions will fall to 17.5 per cent. Based on the balance of China's RMB 79.21 trillion yuan deposit at the end of October, this reduction will release 369.05 billion yuan of funds.

Chinese President Hu Jintao emphasized at the APEC summit on November 12 that under the current situation, China must unswervingly maintain growth and promote stability, especially strive to achieve strong growth, and add impetus to the economic development of the Asia-Pacific region and the world. Since then, China's monetary policy implementation report for the third quarter issued by the central bank pointed out that it will continue to implement a prudent monetary policy, and at the same time, it will also make timely and appropriate pre-adjustment and fine-tuning according to changes in the economic situation.

In fact, on November 23, the People's Bank of China lowered the deposit reserve ratio of six rural cooperative banks in Zhejiang Province by 0.5 percentage points. In a subsequent statement, the central bank said that the banks that received targeted relaxation had previously been punished by raising the deposit reserve ratio due to the failure to complete the target of supporting agricultural loans. This reduction is to cancel the previous punishment, and the restoration of the deposit reserve ratio of these banks to the normal level can not be understood as the reduction of the deposit reserve ratio. However, analysts pointed out that the central bank chose to lower the differential deposit reserve from the agricultural credit institutions, reflecting the direction of moderate fine-tuning of the policy, which belongs to the means of structural easing.

With the outbreak of the European debt crisis and the decline of the peripheral economy, the trend of China's economic downturn and inflation decline in the third quarter is obvious. The November PMI preview index released by HSBC on the 23rd fell to 48.0, a 32-month low. The year-on-year growth rate of CPI in October also fell for three consecutive months, falling back to 5.5 per cent. The agency expects that the year-on-year growth rate of CPI in November will further drop to 4.3-4.5 percent, and the fall in inflation will provide room for monetary policy to shift to moderate easing.

In addition, in October, China's foreign exchange share decreased by 24.9 billion yuan, the first decline in foreign exchange share since 2008. Guotai Junan issued a report stating that after deducting the US $17 billion surplus in October and the US $8.3 billion FDI, the hot money outflow calculated from the foreign exchange account in October was as high as US $29.3 billion. The current outflow of hot money and the re-easing of monetary policy mean that the reserve ratio may be lowered at any time before the end of the year. Independent economist Xie Guozhong said in an interview with NetEase Finance that the central bank's RRR cut is to release part of the liquidity to hedge the negative impact of hot money outflows on domestic liquidity.

A number of economists who have accepted NetEase's financial connection believe that there is still room for the deposit rate to be lowered in the future. Lian Ping, chief economist of the Bank of Communications, believes that there will be 2-4 reductions in the RRR from the end of this year to the beginning of next year, but there will be no frequent and substantial reductions. Wu Xiaoqiu, director of the Institute of Finance and Securities at Renmin University of China, said that due to the decline in foreign exchange holdings, it is expected that there will be 2-3 reductions in the deposit rate in the future.