CICC Interprets Financial Policy Adjustment: Swap Facilitation May Lead to Central Bank Expansion

On September 25th, CICC commented on the policy announced at the press conference held by the State Council Information Office on September 24th. The comprehensive interest rate cut will reduce the interest payment burden on the real economy by about 690 billion yuan (annualized), and the annual interest payment burden may be reduced by 1.30 trillion yuan (annualized, about 1% of GDP). The rate cut not only meets the needs of current credit expansion and existing fiscal strength, but may be used to replace MLF in part, and may also prepare for potential fiscal strength. The impact of swap facilities on the central bank's balance sheet and base currency is more complex: swap facilities may lead to the expansion of the central bank's balance sheet (central bank bills or the central bank's purchase of government bonds in the secondary market), and the central bank's purchase of government bonds in the secondary market will bring about the delivery of base money. If there is no base money, the swap facility may affect the price of stocks and bonds through the effect of asset rebalancing. In the future, if fiscal policy is strengthened and investment efficiency is also improved, market confidence will be further improved, and economic growth will be effectively boosted.