Before the National Day, the central bank issued a directive reduction policy, which is the first time since the central bank's general decline in March 2016.

China's past reserve requirements are no longer the norm, subject to exchange rate expectations.

The biggest obstacle to the past is exchange rate, the central bank is afraid to increase the expected pressure of depreciation, so as to increase the pressure of management pressure.

However, after September, after the wind changed, the expectation of RMB depreciation became the expectation of appreciation, and the change in the direction of exchange rate stability opened up the space for reduction.

Smooth on the other hand, China's M2, by statistics of expanding the range of (breakthrough of quasi currency WB and IMF and other traditional category, so that China's M2 and hook to asset prices, and real estate and directly affect the M2) and expansion of the money multiplier is hard to understand.

When the adjustment of the exchange rate was changed, M2 also continued to decline because of the property control, so that the authorities had to step down.

The author believes that this adjustment is significantly more than market expectations.

First of all, the asset scope of the concessional reserve ratio has been expanded, and this reduction has expanded the preferential field and redefined the scope as inclusive finance.

Second, the directional fall of the second block, the first tranche of the door is lower, actually has the general health property.

Third, the preferential application of the object is expanded, and the state-owned large industry can also apply the policy of targeted reduction.

The original differential reserve interest rate policy, not every time the state-owned commercial Banks are included, the joint-stock commercial banking sector is also treated differently.

With the development of the financial market, the inter-bank transactions increased;

The diversification of financial institutions' assets and the increase of non-credit ratio have further raised the demand for market financing.

From the market financing institutions, large Chinese Banks and insurance institutions, RongChu party are usually on the money market funds, and small and medium-sized Banks, financial institutions and other products, securities institutions are usually capital demanders.

Due to pratt &whitney financial development, and small and medium-sized Banks to apply more discounts the reserve requirement ratio, will greatly improve the currency supply and demand of the market, monetary market funds demand relatively reduced, thus is advantageous to the money market interest rates decline.