How to answer a professor's email?
You're probably overthinking this... The professor's response looks like a polite refusal. If I were you I wouldn't get my hopes up.

If you're really intent on answering I would just say something like "Thank you for your time, and good luck for your grant proposals." but I would get out of my head the idea that if I make a "good impression" I would have a chance of getting in the program. (If I really were you I'm not even sure I would answer, not out of spite of course, but simply because it would be an unnecessary email that would waste both my time and the professor's time... I doubt the professor would notice a lack a response. Though a "thank you" never hurt anyone.)