Abstract: The Central Political Bureau meeting on September 26th demonstrated the government's determination to stabilize growth, with achieving the "three stabilities"—stable growth, stable real estate market, and stable stock market—becoming the main theme of current macroeconomic policies. "Ensuring necessary fiscal expenditure" remains key to boosting aggregate demand at this stage, and there is a necessity and feasibility for fiscal policy to exert marginal strength. "Promoting the stabilization and recovery of the real estate market" is an important marginal change, indicating the central government's attention and expectations regarding real estate issues. To achieve the stabilization and recovery of the real estate market as soon as possible, in addition to implementing the requirements of the Party Central Committee, it is also necessary to quickly deal with and resolve the risks of real estate companies, carry out classified disposal of real estate companies, and allow high-quality real estate companies to emerge from difficulties first.
Lowering the benchmark interest rate and the interest rate on existing housing loans is the most direct and effective policy. Interest rate cuts can at least play a role in boosting aggregate demand through three channels: reducing real interest rates, improving cash flow, and reducing early loan repayments, and these three transmission channels are still valid and unobstructed. Reducing reserve requirements is not as effective as increasing the use of structural monetary policy tools, and the key is for structural monetary policy tools to reflect cost advantages.
By analyzing the mechanisms of two new tools, we believe that the new tools will play a positive role in stabilizing the capital market and asset valuations, but there are also characteristics worth noting. The swap facility is generally liquidity neutral and may increase the volatility of related assets. Some objective factors may affect the actual application scenarios of "stock repurchase and increase special reloans." At the same time, the scale of use of the two new tools will be somewhat constrained under the goal of maintaining external and internal balance.
