Do you really understand what reserve requirement ratio cuts and interest rate cuts are? What impact will a new round of reserve requirement ratio cuts and interest rate cuts have on investment? Simply put, the core logic of reserve requirement ratio reduction is to "release water to raise fish" To the economy, increase liquidity, alleviate difficulties in corporate financing, and promote economic recovery. For the public, loans are easier and there are more opportunities for consumption and investment, but the shrinkage of deposits requires adjustments to financial management strategies. one ️⃣ Firstly, what is reserve requirement ratio reduction and interest rate cut? 1. Reserve requirement ratio reduction: that is, "lowering the reserve requirement ratio". Simply put, commercial banks need to pay a proportional (such as 6.6%) deposit to the central bank for each deposit they receive, and the remaining amount can only be used for lending or investment. After the reserve requirement ratio is lowered, this proportion can be reduced, allowing banks to have more discretionary funds and release more loans. For example, this 0.5 percentage point reduction in reserve requirement ratio is expected to release approximately 1 trillion yuan of liquidity into the market. 2. Interest rate cut: It is to lower the benchmark interest rate for deposits and loans. However, this time we are talking about 'policy interest rates'. The policy interest rate is an interest rate tool directly controlled by the central bank (such as the People's Bank of China), which is used to transmit monetary policy signals and regulate the economy. Simply put, it is the wholesale price at which the central bank provides funds to commercial banks, directly affecting the cost of funds and market interest rates in the banking system. Generally, the central bank transmits the price signal of policy interest rates to the financial system by adjusting them, which affects money market interest rates, bond market interest rates, deposit and loan interest rates, and thus affects the real economy, playing a role in macroeconomic regulation. A rate cut (such as a 0.1 percentage point reduction this time) indicates that the central bank hopes to reduce social financing costs and stimulate the economy; Raising interest rates is the opposite, used to curb inflation or overheating. two ️⃣ So, what are the impacts on ordinary people? 1. Reduce loan costs and alleviate repayment pressure Fundamentally, a decrease in policy interest rates usually leads to a synchronous decline in LPR. For example, the 5-year LPR is the benchmark for mortgage pricing, and the 0.1% reduction in policy interest rates may further lower mortgage rates. Taking a 1 million yuan mortgage (30-year term) as an example, for every 10 basis points decrease in LPR, the monthly payment can be reduced by about 60 yuan. In addition, banks may lower interest rates for other loans, such as consumer loans and car loans. Lowering the reserve requirement ratio can increase the available loan funds for banks, potentially lowering loan thresholds (such as faster approval and relaxed conditions), and also driving down loan interest rates (especially for small and micro enterprises and personal consumer loans). 2. Deposit income shrinks The loan interest rate is lowered, and the deposit interest rate is generally also lowered. In 2024, state-owned banks have repeatedly lowered deposit interest rates, with 3-year fixed deposit rates generally below 2% and some entering the "1% range". The recent reduction in policy interest rates may further drive down deposit interest rates, and it is unknown whether all employees will enter the "1 era". The reserve requirement ratio reduction reduces the cost of bank funds (without the need to pay more "deposits"), which may further lower deposit interest rates, especially for large denomination certificates of deposit and long-term fixed deposits. Therefore, the bank deposits of the public, as well as the returns of related monetary funds and low-risk wealth management products, may decrease with market interest rates, and those who rely on interest income need to adjust their asset allocation. 3. Changes in Investment and Consumption Behavior Interest rate cuts and reserve requirement ratio cuts reduce corporate financing costs, increase profit expectations, and benefit the stock market performance of some growth industries and the real estate sector. Moreover, in a low interest rate environment, the decrease in borrowing costs may stimulate the consumption of durable goods such as household appliances and cars, while the stabilization or rebound of housing prices will increase household spending through the "wealth effect". 4. Enhancing the ability of banks to serve the real economy The reduction of policy interest rates can lower the cost of bank debt and alleviate the pressure on net interest margins (currently, the net interest margin of commercial banks has dropped to a historical low of 1.53%), thereby releasing more credit resources to support small and micro enterprises and the real economy. 5. Long term economic and price impacts If consumption and investment are stimulated, it may push up prices, but the current CPI is at a low level and the risk is controllable. By reducing financing costs, promoting corporate investment and household consumption, we can help with economic recovery. Suggestions for ordinary people to deal with Loan family: Pay attention to the preferential policies of bank housing loans and consumer loans, and consider applying for loans during the low interest window period. Depositors: reduce long-term fixed deposits, turn to treasury bond, insurance and other income locking products, or appropriately allocate equity assets (such as funds). Investors: Short term focus on policy benefiting sectors (finance, consumption), but be alert to the risk of market overheating. Consumers: If the expectation of rising prices increases, they can purchase durable consumer goods (such as household appliances) in advance. Finally, based on my personal investment logic, I bought another Pinxi stock. 1. Pinduoduo is probably the only global giant that has not mentioned any AI stories. To my knowledge, Pinduoduo has actually done a lot of AI efficiency improvement work internally, but they are unwilling to talk about it. Moreover, in fact, Pinduoduo's technical level in e-commerce is much higher than Alibaba's. If you don't believe it, compare Pinduoduo and Taobao's opening speed, page switching speed, accuracy of recommendations, size of download packages, timing of notification push, and so on. They all have a comprehensive advantage over Taobao, JD.com, and even Amazon. In fact, Taobao can also outperform Amazon. 2. In the context of stimulating consumption, I haven't seen any cheaper opportunities than Pinduoduo, maybe not even this year. The market's perception of Pinduoduo is negative, but that's okay. Pinduoduo can prove itself through repeated financial reports, and I have enough patience to wait for Temu's break even point. At that time, Pinduoduo will return to a reasonable valuation. So, locking up the position and looking back three years later, I expect to achieve an annual compound interest rate of 20%, which actually meets my investment expectations. This is a long-term and easy decision.