Core conclusion
On March 15, 2022, the people’s Bank of China launched the medium-term loan facility (MLF) operation of 200 billion yuan. The bid winning interest rate of MLF operation remained unchanged at 2.85%. Our comments are as follows:
I. how to understand that the MLF interest rate has not been lowered “as scheduled”?
With the release of financial data in February, the market has high expectations for the central bank to cut MLF interest rate. We believe that the stability of MLF interest rate this time is in line with the current macro environment. Since February, major economic zones such as the Pearl River Delta and the Yangtze River Delta have successively broken out, which will not only restrict consumption again, but also have a certain negative impact on infrastructure and real estate construction. In addition, the Fed’s interest rate increase and table contraction may interfere with China’s policies. The recent continuous flow of funds going north indicates that the situation in Russia and Ukraine has also disturbed China’s liquidity environment. We believe that at this time, the cost performance of the steady growth policy is not high. In addition, there is the concept of “headwind” in the macro economy, that is, the economic subject has a decline in the expansion capacity of the balance sheet due to the damage of the balance sheet and the improper allocation of resources. In this case, the marginal utility of the central bank’s policy is decreasing. China’s residential sector is likely to have a “headwind” impact, and its balance sheet has decreased its willingness to expand due to the impact of the uncertainty of the epidemic, the slowdown of income growth, the decline in the price of assets held (house prices). Recent factors, including the fluctuation of offshore RMB exchange rate and northward capital outflow, have also disturbed China’s financial market. At this time, the central bank did not do wide currency operation, which also means maintaining expected stability.
Second, the monetary policy toolbox is sufficient, but the core focus of the current market is not monetary policy
If we consider the equity market, we mentioned in our recent report “logic of A-Shares and three possibilities for follow-up”, and we believe that we need to be cautious about the equity market. Since March, the market has adjusted rapidly. The impact of the recent epidemic, the uncertainty of the conflict between Russia and Ukraine and the possible liquidity impact of overseas financial markets have become the focus of market participants.
Back to China’s economic fundamentals and the current round of steady growth policy, we once summarized this year’s monetary policy with “less credit and more money”. Its characteristic is that the aggregate policy is the escort of stable growth. Once the economic growth data shows signs of falling short of expectations, comprehensive interest rate cuts and other monetary policies can still be expected. The economic data released at the same time today shows that the economic fundamentals have recovered significantly, and the pessimistic expectations of the market have been repaired to a certain extent. If the subsequent fundamentals fall, the central bank will still use monetary policy tools including aggregate and structure to escort steady growth. Moreover, from the perspective of the effect of the policy, we believe that after the current round of epidemic has cooled down, the cost performance of monetary policy will be higher.
In addition, the recent global financial market turmoil. Under the situation of Russia, Europe and the United States, the global liquidity crisis may be out of control. If this happens, we expect the central bank to work with the global central banks to quickly cut interest rates, increase liquidity investment and maintain financial stability.
Risk warning: changes in economic fundamentals exceed expectations; Monetary policy exceeded expectations.
