What is the difference between the RRR cut of the central bank and the rate cut?

In 2020, affected by the COVID-19 epidemic, the international central bank began? RRR cut interest rates and cut interest rates? Channels. RRR and interest rate cuts are both central bank's monetary policies. I believe many investors still don't understand the definition and difference between the two.

Today, let's talk about the specific operation methods of the central bank's RRR and interest rate reduction, the differences between them, and the impact on daily life.

How does the central bank reduce RRR? The main business of banks is to make money by absorbing deposits and issuing loans? Interest difference? In order to strengthen the supervision of banks and maintain the stability of the lending cycle, the central bank requires banks to reserve some funds and not lend all of them. This money is specially used to meet the withdrawal needs of depositors? Deposit reserve? .

The central bank's reduction of RRR means reducing the bank deposit reserve, reducing the proportion of funds reserved by banks according to the economic environment, and increasing the bank's loanable funds, thus increasing the credit scale, increasing the money supply, releasing liquidity and stimulating economic growth.

By releasing the margin of commercial banks in the central bank, RRR interest rate cuts will increase the supply of funds in the market and help stimulate production links.

The operation mode of the central bank's interest rate reduction refers to the financial mode in which the central bank reduces the deposit and loan interest rates and uses interest rate adjustment to change the cash flow. When banks cut interest rates, depositors' deposit income will decrease, which will lead depositors to withdraw their deposits and turn them into other investments or consumption, thus releasing liquidity to the market and stimulating the growth of the real economy.

In the first half of 2020, the central bank successively lowered the 1 MLF interest rate and the loan market quotation LPR, the former from 3.25% to 3.15%; The latter decreased by 10 basis point, and both of them were in an obvious downward channel.

Although interest rate reduction will not increase the amount of market funds, it can reduce the deposit return rate of the central bank, change the direction of investors' use of funds, and improve the trading activity of the securities market.

The impact of the RRR cut by the central bank on people's lives The most intuitive impact of interest rate cuts is that the income of bank deposits has decreased. For example, after the benchmark interest rate of 1 year deposit is lowered by 0.25 percentage point, if depositors deposit time deposits of 1 10,000 yuan, the annual interest will be reduced by 250 yuan. Similarly, the yield of bank wealth management products will be lowered accordingly. For investors who invest idle funds in fixed-income products, the annual interest income will be reduced a lot.

However, interest rate cuts will promote the transfer of bank deposits to consumption and investment, which is conducive to the overall upward development of the economy and good news for the stock market and bond market. We can also see that the securities market in China has been more active since March this year.

In addition, the interest rates of commercial loans and provident fund loans will also decrease accordingly. Because the repayment rates of provident fund loans and commercial real estate loans are linked to the benchmark interest rate of the central bank, after the central bank cuts interest rates and RRR, the mortgage pressure of individuals and families who borrow to buy a house will be reduced accordingly.

The main purpose of the RRR cut by the central bank is to play the guiding role of the benchmark interest rate, promote the reduction of social financing costs, and support the sustained and healthy development of the real economy. Capable entrepreneurs will get a more relaxed entrepreneurial environment, and can also support some small and medium-sized enterprises to tide over the difficulties in extraordinary times.