On August 15, People's Bank of China issued an announcement stating that in order to maintain the reasonable liquidity of the banking system, 400 billion yuan of medium-term lending facilities (MLF) operations were carried out on the same day (including the renewal of the MLF due on August 16) and 2 billion yuan of open market reverse repurchase operations. Among them, the winning bid for MLF operations and open market reverse repurchase operations were 2.75% and 2.0% respectively, both down 10 basis points. This is the second cut in the MLF operation interest rate this year after the MLF " cuts " in January this year. At the same time, MLF shrinks 200 billion yuan, which has attracted widespread attention from the market.
"MLF moderate shrinkage is in line with market expectations." Wen Bin, chief economist of China Minsheng Bank, said that the scale of this reduction is not large, indicating that Central Bank does not want to send out the signal of excessive tightening of monetary policy and will still maintain a reasonable abundance of base currency.
html Since April, with the coordinated efforts of monetary policy and fiscal policy , market liquidity has always been in a state of abundant supply, driving the overnight capital interest rate, 7-day capital interest rate, and 1-year interbank certificate of deposit yield , and other major market interest rate , continue to decline. In the "China Monetary Policy Implementation Report for the Second Quarter of 2022", the central bank also explained the shrinking reverse repurchase in July, pointing out that "as the bidding volume of primary traders continues to decrease, the central bank has further reduced the reverse repurchase operation volume accordingly, but it still fully meets the needs of bidding institutions." Wen Bin believes that this means that since July, the central bank's continued reverse repurchase shrinking volume is caused by demand, and is more of a "passive" response than an active shrinking volume to send out a tightening signal. Therefore, with abundant liquidity and insufficient demand from primary traders, the shrinkage of MLF in August is also expected and will not have a significant impact on market expectations."Recently, the recovery momentum of macroeconomic is slowing down, and monetary policy needs to be further strengthened." Oriental Jincheng Chief Macro Analyst Wang Qing believes that in order to ensure the economic recovery momentum in the second half of the year and stabilize the overall employment situation, it is necessary to take timely actions including monetary policy , increase the counter-cyclical regulation of , and moderately stimulate total demand.
JLL Chief Economist and Head of Research Department, JLL Greater China, believes that the MLF's "interest rate cut" is also to effectively promote the steadily drop in the cost of the real economy's comprehensive financing and corporate loan interest rates, promote the financial system to give concessions to the real economy, help the real economy recover, the release of new momentum for economic growth, the repair of weak links in the economy, and corporate relief, and stimulate credit demand.
"At this point, the central bank needs to take certain countercyclical adjustment measures to alleviate the increasing downward pressure on the economy and boost market confidence." Wen Bin said that from the perspective of economic fundamentals, the manufacturing PMI fell by 1.2 percentage points in July to 49%, falling below 50% of the boom-bust line. Judging from the financial data, the total amount and structure of financial data in July were poor, indicating that the physical department's willingness to raise is still weak. Since August, credit demand has continued to be weak, and bill interest rates have run at low levels, reflecting the lack of endogenous momentum of the economy and the effective demand after the impact of the epidemic has not been completely restored. Against the backdrop of reduced residents' income and high debt burden, reducing policy interest rates and thus guiding LPR downgrade will also help release dividends for existing housing mortgage loans and increase residents' consumption expectations.
After both the winning bid rate for this MLF operation and the open market reverse repurchase operation were lowered, the market generally expects that the LPR quotation may be adjusted accordingly. Wang Qing believes that the lowering of the MLF interest rate in August means that the pricing basis of the LPR quotation that month has changed. In addition, the cost of bank capital has also declined rapidly recently. The probability of lowering the quotation in August, especially the quotation of LPR for more than 5 years or more, is relatively high.
Regarding the next trend of monetary policy, Pang Ming believes that in order to increase efforts to repair weak links in the real economy and alleviate corporate difficulties, more structural tools are expected to be used for precise and targeted support, especially in key areas such as small and micro enterprises, private enterprises, real estate industry, consumer loans, technological innovation , green development and other key infrastructure projects.Monetary policy should also promote the implementation and effectiveness of previous policies, and at the same time continue to clear the transmission chain from "loose currency" to "loose credit" and help repair the financing needs of the real economy. In addition, we should make more use of the new credit of policy banks, infrastructure construction, investment funds, development financial bonds, etc., make full use of policy development financial tools, accelerate the progress of projects and implement them as soon as possible, accelerate the release of the comprehensive effects of expanding investment, leading employment, and promoting consumption, and strive to achieve the best results.
Source: China Economic Network
