In order to support the development of the real economy and promote the stabilization and decline of comprehensive financing costs, the People’s Bank of China decided to lower the deposit reserve ratio of financial institutions by 0.5 percentage points on December 15, 2021. Some institutions estimate that approximately 1.2 trillion yuan will be released in this RRR cut, and approximately 300 billion to 400 billion yuan will be used to hedge against the reduction and renewal of MLF. The final long-term funds released will be 800 to 900 billion yuan. The amount released by the RRR cut is equivalent to the base currency, which will be amplified into M2 through the money multiplier (currently about 7.5), and ultimately theoretically increase M2 by about 6 trillion to 6.75 trillion. Less than 72 hours after the Premier of the State Council mentioned a timely RRR cut, the central bank took action, both fast and powerful enough.
Although the PMI index returned to above the boom-bust line in November, indicating a rebound in economic prosperity, the recovery foundation of small, medium and micro enterprises is still unstable and requires further policy support. The RRR cut at this time can be said to be tailor-made, specifically to increase support for the real economy, especially small, medium and micro enterprises. So what are the positive effects of the RRR cut on my country’s cotton textile industry?
The views of some institutions and cotton-related companies are as follows: First, it is conducive to the stabilization of cotton futures market, to achieve the purpose of enhancing the confidence of farmers, cotton processing companies, trading companies and other industrial chains, and to protect the enthusiasm of all parties; second, it is conducive to cotton, cotton textile , clothing and other small and medium-sized enterprises to reduce financing costs and alleviate the multiple pressures caused by the scissor gap between PPI and CPI since the second half of 2021. Especially in December, most cotton textile companies have encountered problems such as tight capital flow and difficulty in collecting payment. Providing incremental funds can help companies get out of trouble and further enhance their enthusiasm for business development in 2022. Judging from the survey, in the first quarter of 2022, my country’s cotton textile, clothing, and foreign trade companies are expected to place orders lower than expected, and the recent surge in freight rates at ports in Southeast Asia has caused my country’s textile and clothing export boom to decline again (few ships, some ports in Southeast Asia are clogged , the epidemic and other factors), therefore timely lowering the reserve requirement ratio and supporting real enterprises has become a necessary choice for the central bank.
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