On December 15, the People’s Bank of China launched a 650 billion yuan medium-term lending facility (MLF) operation and a 2 billion yuan open market reverse repurchase operation. Compared with the maturity amount of 500 billion yuan, MLF increased the amount of continuation. At the same time, the operating rate was 2.75%, which was the same as last month.
Implementing comprehensive RRR cuts, continuous open market reverse repurchase operations, and providing mid- and long-term liquidity through PSL (Pledged Supplementary Loans)… As the end of the year approaches, the central bank uses various means to ensure the smooth operation of the financial market. Looking forward to next year, according to the spirit of the Politburo meeting of the CPC Central Committee held recently, the prudent monetary policy will be more precise and powerful.
The interest rate of MLF incremental sequel remains unchanged
People in the industry generally believe that the central bank’s increase in the volume of MLF reflects its attitude of maintaining a reasonable and sufficient market liquidity.
Wang Qing, chief macro analyst at Oriental Jincheng, said that the maturity of MLF in December was 500 billion yuan, which was halved from the record 1 trillion last month, but it was still at a relatively high level. This time the central bank implemented a continuation of the increase in volume, which did not continue the shrinking operation last month, indicating that it intends to increase the medium and long-term liquidity input to the market.
Zhou Maohua, a macro analyst at China Everbright Bank, also said that interest rates on interbank certificates of deposit have risen rapidly recently, which has pushed up the demand for MLF to a certain extent; at the same time, as the end of the year approaches, moderately increasing liquidity can stabilize market expectations.
It is worth noting that the interest rate for this MLF operation is 2.75%, which is the same as last month. Dong Ximiao, chief researcher of China Merchants Union Finance, said that the MLF bidding interest rate is the same as before, mainly considering the internal and external balance issues, and the comprehensive RRR cut in December has reduced the cost of bank funds, which means that the possibility of LPR decline on December 20 is low. However, Dong Ximiao also said that due to the decline in bank deposit interest rates and two comprehensive RRR cuts this year, the cost of bank funds has dropped.
“The MLF interest rate remained unchanged in December, which means that the basis of LPR quotations for that month has not changed. However, since September, commercial banks have launched a new round of deposit interest rate cuts, and the reduction is significantly greater than the first round of deposit interest rates in the year started in April. Reduction. The implementation of the RRR cut in December will also reduce the capital cost of financial institutions by about 5.6 billion yuan per year. These factors will offset the impact of the recent rise in market interest rates and increase the incentives for quotation banks to lower LPR quotations by adding points.” Wang Qing said.
Funding will remain stable at the end of the year
From Monday to Friday this week, a total of 10 billion yuan of reverse repurchases expired, and 2 billion yuan of reverse repurchases matured every day and the central bank’s open market operations on that day basically realized complete liquidity hedging. At the same time, the central bank announced on December 12 that it conducted open market business spot bond buyout transactions through quantitative bidding, and purchased 750 billion yuan of special treasury bonds from primary dealers in the open market to maintain the total amount of currency liquidity in the market. Abundance and structural stability. Industry insiders believe that at the end of the year, the overall market capital will remain relatively stable.
As an important indicator for judging the tightness of liquidity, the recent key money market interest rates DR007 and R007 are all below the policy tool interest rate. On December 15, inter-bank pledged repurchase-weighted interest rates were mixed. The overnight interest rate was raised by 15.06 basis points to 1.19%, and the 7-day repurchase rate was reduced by 2.38 basis points to 1.68%. Other interest rates showed a downward trend.
“At the beginning of December, the central bank lowered the RRR by 0.25 percentage points in a timely and appropriate manner, releasing long-term liquidity of more than 500 billion yuan, ensuring that the interest rate of the repurchase market funds remained at a low level, and the liquidity of the financial system was reasonably sufficient. At the same time, the PSL investment in November reached 367.5 billion Yuan, all kinds of structural tools have been strengthened and improved, which has strongly supported the key areas and weak links of the economy. The forward-looking improvement of monetary policy has also kept the interest rate level in a state of “not loose or tight”. “Chief financial industry of Everbright Securities Analyst Wang Yifeng predicts that the central bank will step up its open market operations towards the end of the year. On the basis of the December MLF incremental sequel, it will launch a 14-day reverse repurchase in due course to provide liquidity guarantees for a smooth New Year’s Eve.
From the perspective of factors affecting market liquidity, Liang Si, a researcher at the Bank of China Research Institute, also believes that there will be no obvious liquidity gap at the end of the year. “The monetary policy report for the third quarter proposes to provide a suitable liquidity environment in order to consolidate the upward momentum and do a good job in the economic work at the end of the year. It is expected that the operation of cutting peaks and filling valleys will continue to ensure the stability of the total liquidity.” Liang Si said.
Monetary policy will be more “precise and powerful”
The recent meeting of the Political Bureau of the Central Committee of the Communist Party of China pointed out the direction of how to exert monetary policy next year. Different from the “flexible and moderate”, “flexible and precise, reasonable and moderate” and “moderately tight” mentioned in the past, this meeting emphasized that a prudent monetary policy should be “precise and powerful”.
“This shows that the monetary policy in the next stage will focus on the two aspects of ‘precision’ and ‘powerfulness’ to further improve the precision and effectiveness of serving the real economy.” Dong Ximiao said, “precision” means highlighting structural aspects The role of monetary policy tools, increase targeted “blood transfusion” in key areas and industries, implement precise drip irrigation, and optimize the credit structure. “Powerful”, the deposit reserve ratio should be lowered in due course to provide financial institutions with long-term stable low-cost funds, and continue to send a clear signal to the market to stabilize growth and expand domestic demand.
In terms of the total amount, Wang Yifeng believes that the total amount of new RMB credit in 2023 will be slightly more than that in 2022, and the growth rate and M2 growth rate will be slightly lower than this year. However, with the increase in the production vitality of enterprises, the M1 growth rate will increase, the phenomenon of regular deposits will improve, and there is still room for the reduction of the deposit reserve ratio.
From a structural point of view, the effectiveness of structural monetary policy support will continue to strengthen. According to Lou Feipeng, a researcher at Postal Savings Bank, next year’s monetary policy will focus on stabilizing growth, employment, and prices. “In this case, it is expected that both aggregate and structural monetary policies will be adopted, but more structural Policy tools to guide capital flows to key areas and weak links.”
Wang Yifeng also predicts that on the basis of re-loans in the early stage of green, inclusive, agriculture-related, transportation, equipment renovation, and guaranteed delivery of buildings, it is still possible to further increase targeted monetary policy support measures. The possible foothold is to protect the industrial chain supply chain security.
(Zhang Moxiang Jiaying)
[Responsible editor: Cao Jing]