What impact will the reduction in the deposit reserve ratio have on the foreign exchange market?

  Financial institutions need to deposit in the central bank in order to ensure that customers can withdraw deposits and clear funds. The ratio of the deposit reserve required by the central bank to its total deposits is the deposit reserve ratio. This article will introduce to you the impact of the reduction of the deposit reserve ratio and the impact of the reduction of the deposit reserve ratio on foreign exchange.

  RRR cuts are one of the central bank's monetary policies. The central bank reduces the statutory deposit reserve ratio, which affects the amount of bank loanable funds, thereby increasing the scale of credit, increasing the money supply, releasing liquidity, and stimulating economic growth.

  By lowering the RRR, one is to increase the liquidity of the market, so that commercial banks can have a stronger ability to provide credit. After the reserve is lowered, the bank's funds are relatively more abundant, which is good for credit issuance; the second is to use the liquidity of funds. Relatively loose, which will help to reduce the market interest rate level. After the reduction of the deposit reserve ratio this time, commercial banks can obtain about 15 billion yuan in cost reduction. After the cost reduction, it will also help banks to provide lower financing costs and credit in the future. funds. At the same time, it is not ruled out that the MLF interest rate will be lowered to affect the lowering of the traction LPR interest rate, so as to reduce the financing cost of enterprises.

  What is the impact of the reduction in the deposit reserve ratio?

  First of all, we must understand the deposit reserve. Commercial banks absorb the deposits of the public, absorb the storage of the public, and after absorbing the money, in order to obtain profits, they lend the money to the market. In order to pursue profits, commercial banks are willing to bring more money to the market, because the more money they bring, the more potential returns they will get, and the higher they will be. The following is the impact of the reduction in the deposit reserve ratio.

  1. Money and credit will grow. Because the loanable funds of commercial banks will increase, the loan interest will also decrease. Of course, the final result of this adjustment is that the currency in circulation in the market has increased, making it easier to borrow money, and the cost of obtaining funds for some enterprises has decreased, and social investment has increased accordingly.

  2. The interest on personal deposits decreased. If the central bank lowers the deposit reserve ratio, commercial banks will have more loanable funds, and they will lower the deposit interest rate. At this time, the deposit interest rate will also drop.

  3. The development of the stock market has improved. The adjustment of the deposit reserve ratio also has an impact on the stock market. Generally speaking, lowering the deposit reserve ratio indicates a major positive for the stock market, but we must also beware of repeated tragedies of chasing highs.

  4. Stimulate consumers to buy houses. After reducing the deposit reserve ratio, the bank's follow-up funds will be more abundant, the mortgage loan may continue to be relaxed, and the pressure on home buyers will continue to decrease.

  What impact will the reduction in the deposit reserve ratio have on the foreign exchange market?

  The reduction of the deposit reserve ratio has no direct impact on foreign exchange and foreign exchange rates.

  When the deposit reserve ratio is lowered, the reserves stored in the central bank can be reduced, so the funds that can be lent will increase, and the deposit and loan interest rates will usually be reduced. This is a fiscal policy adopted when the economy is relatively loose. Under the conditions of deflation, it will also stimulate lending by reducing deposit and loan interest rates and stimulate economic growth.

  The lowering of the deposit reserve ratio indicates that commercial banks can lend more deposits to revitalize the market economy, which will relatively boost the domestic economy and in turn boost the domestic currency. Not directly related to the foreign exchange market.