On February 11, the central bank issued the fourth quarter monetary policy implementation report of 2021 (hereinafter referred to as the report). Our comments are as follows:
I. policy position: the focus of the policy is further inclined to "steady growth"
The central bank's judgment on the economic situation outside China has further tended to be cautious, pointing out that monetary policy will be more inclined to "steady growth". Internationally, the central bank believes that under the triple constraints of "epidemic situation, inflation and monetary policy adjustment of developed economies", the external environment "becomes more complex, severe and uncertain". The economic growth of developed economies may have peaked periodically, and the inflationary pressure has also been at a high level, so it is necessary to pay attention to the risk of inflation expectation breaking down. On the Chinese side, although China's economy "recovered and stabilized" in the fourth quarter, it still "faces downward pressure" under the "triple pressure", and added that "the epidemic has repeatedly inhibited China's consumption, and investment in some fields is still bottoming out; medium and long-term problems such as potential economic growth, slowing population growth and low-carbon transformation can not be ignored". The central bank believes that China's inflation pressure is generally controllable, and believes that this year's CPI inflation center may be "moderately higher" than last year, while PPI will "continue to fall" year-on-year.
In terms of policy stance, the central bank stressed that "prudent monetary policy should be flexible and appropriate, strengthen cross cycle regulation, and grasp the dual functions of" total amount "and" structure "of monetary policy tools. On the one hand, the central bank requires that monetary policy should be "sufficient, accurate and forward", and guide the "strong expansion" of loan investment. On the other hand, the central bank reiterated "no flood irrigation" and increased support for key areas and weak links, so as to realize the combination of "stable total amount and excellent structure". On "stabilizing credit", the central bank stressed the need to "enhance the stability of the growth of total credit". In terms of "structural adjustment", the central bank will maintain the stability of refinancing and rediscount policies, strive to increase support for small and micro enterprises, scientific and technological innovation and green development, and "actively tap new and reasonable financing needs". It is worth noting that the central bank will move its position of "focusing on me" from the general tone of monetary policy to the exchange rate part, pointing out that the central bank will pay more attention to the spillover effect of the tightening of Fed policy on China.
II. Policy operation: "sufficient force, accurate force and forward force"
Since the second half of last year, the monetary policy has been flexible and forward-looking, taking multiple measures at the same time, and effectively forming a joint force, which fully reflects that the central bank has taken the initiative to respond to the downward pressure on the economy. In July and December last year, the central bank comprehensively lowered the reserve requirement twice, and at the end of the year, it lowered the small refinancing interest rate for agricultural expenditure by 25bp; At the beginning of this year, the bid winning interest rate of MLF and open market was lowered by 10bp. The central bank continuously and stably transmits the policy interest rate signal to the market through daily open market operation and medium-term lending convenience operation at a fixed time in the middle of each month.
Since the fourth quarter of last year, market interest rates have fluctuated narrowly around policy interest rates, and liquidity is expected to be more stable at key time points such as the end of the year and the Spring Festival. At the end of 2021, the over storage rate of financial institutions was 2%, down 0.4pct from the same period of last year. In the fourth quarter of 2021, dr007 was on average 5bp lower than the policy interest rate. The inter-bank certificate of deposit interest rate fluctuated downward, and the downward speed was further accelerated after the reduction of reserve requirements and interest rates. On February 11, the yield to maturity of one-year state-owned interbank certificates of deposit was 2.45%, down 23bp from the end of the third quarter and 40bp below the MLF interest rate. At the end of 2021, the balance of interbank certificates of deposit in the whole market was about 14 trillion yuan. The downward issuance price of interbank certificates of deposit was conducive to reducing the capital cost of financial institutions and further transmitted to the real economy.
The report clearly points out that China's macro leverage ratio has decreased for five consecutive quarters, and decreased by 7.7pct to 272.5% at the end of 2021 compared with the end of the previous year, creating "space" for the financial system to increase its support for the real economy. In the future, the central bank will continue to comprehensively use a variety of monetary policy tools to maintain reasonable and abundant liquidity.
III. other objectives: "reducing costs", "preventing risks" and "stabilizing the exchange rate"
In terms of "cost reduction", with the policy support and guidance of the central bank, the enterprise loan interest rate fell further in, the lowest level in more than 40 years of reform and opening up. In the fourth quarter of last year, the central bank guided the one-year LPR to fall by 5bp and lowered the small refinancing interest rate for agricultural expenditure by 25bp, promoting the steady decline of relevant loan interest rates. The weighted average interest rate of RMB general loans decreased by 11bp from 5.30% at the end of the third quarter to 5.19% at the end of the fourth quarter, of which the weighted interest rate of enterprise loans decreased by 2bp to 4.57% month on month, while the interest rate of individual housing loans continued to rise slightly by 9bp to 5.63%. The reasonable abundance of liquidity pushed down the market interest rate, and the bill interest rate fell 92bp to 2.18% from 3.10% in the same period. Promoting the reduction of "comprehensive financing costs of enterprises, especially small and micro enterprises" is still an important follow-up goal.
In terms of "risk prevention", the central bank has been more active in setting the tone for real estate. On the basis of adhering to "no speculation in housing" and "stabilizing land prices, house prices and expectations", the central bank added the expression of "better meeting the reasonable housing needs of property buyers", pointing to the expected improvement of real estate financial conditions, especially the reasonable financing needs of just in need property buyers and real estate enterprises.
In terms of external balance, the central bank believes that the pace of tightening monetary policy by the Federal Reserve will be accelerated, and the risk of global cross-border capital flows and financial market fluctuations will increase. This is obviously different from the statement in column 3 of the report in the third quarter of last year that "the policy adjustment of developed economies has limited impact on me". Therefore, the central bank stressed the need to "strengthen" (previously "improve") the macro Prudential Management of cross-border capital flows and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
IV. summary: monetary policy makes every effort to "stabilize growth"
Overall, the report shows that China's monetary policy is fully inclined to "steady growth". By seizing the "sufficient force" and "forward force" in the window period before the Fed's interest rate hike, we will release a clear signal of "stable growth", and will continue to "accurately force" through structural monetary and credit tools to provide targeted support to key economic areas and weak links. In terms of policy operation, there is still incremental space for medium-term lending convenience operation from February to March. If the downward pressure on the economy exceeds expectations, the central bank may still further cut reserve requirements and interest rates in the first half of the year.
