Key points
1. Events
The interest rate of the people’s Bank of China on the medium-term loan of RMB 1500.2 billion (ml2.5%) in 2024 is 15%.
2. Comments
The operation volume of MLF is in line with the maturity volume, which is in line with market expectations. At present, the yield of 1yaaa + CD is about 2.5%, which is about 35bp lower than the MLF interest rate of 2.85%, which shows that the medium-term capital of the banking system is loose, and the interest rate is not too low, so it is in a more comfortable state. Today, the operation volume of MLF is consistent with the maturity volume. There is neither net investment nor net return. The loose and comfortable state of the early and medium-term capital market will continue to be maintained, and the loose liquidity constraints have created favorable conditions for the enhancement of the stability of total credit growth.
The flat MLF interest rate is in line with the expectations of most people in the market, but it also slightly disappointed a few investors. At present, the yield of China’s 10Y treasury bond is 2.77%, while the yield of 10Y US Treasury bond is 2.83%. The interest margin between the two is lower than the average value of the past few years. At this time, the choice of monetary policy is more intelligent, which will further strengthen the financial support to the real economy, especially the industries seriously affected by the epidemic, small and micro enterprises and individual industrial and commercial households, make reasonable profits to the real economy and reduce the comprehensive financing cost; We will also do a good job in stabilizing foreign trade and foreign investment, maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, and maintain the basic balance of international payments. (Note: objectively speaking, the interest rate spread between China and the United States may have an impact on China’s monetary policy, but it is not a hard constraint. In addition, there is no special economic meaning for the positive to negative interest rate spread.)
MLF interest rate is a medium-term policy interest rate, which has a strong monetary policy signal and can quickly form an effective transmission of interest rates in the financial market and loan market. For example, after the MLF interest rate fell by 10bp on January 15, 2022, the yield of 10Y treasury bond quickly fell from around 2.8% at the beginning of the month to around 2.7%. The volume and price indicators in the loan market also reflect the above smooth transmission.
At this stage, MLF interest rate reduction is obviously conducive to increasing financial support for the real economy, but it may also increase some difficulties in maintaining the balance between internal and external equilibrium. In fact, there is not only MLF interest rate cut in the monetary policy toolbox, but there may be more changes in policy or market mechanism in the near future, which are conducive to further increasing financial support for the real economy.
Some investors believe that China’s policy interest rate should change inversely with that of the United States to demonstrate the autonomy of China’s monetary policy. In the report “the Federal Reserve follows the Central Bank of China to cut interest rates” on March 5, 2020, we pointed out the fact that China’s monetary policy is “self dominated” and ahead of other major economies, and repeatedly emphasized this view in later reports. At this time, we need to state that the “self-centered” monetary policy is the freedom and self-confidence of the strong. This is the fact that China’s monetary policy has more space, and should not be the reason for being coerced by the MLF’s expectation of interest rate reduction. The monetary authority is more unlikely to reduce the policy interest rate just to prove that it is “self-centered”.
3. Risk warning
Irrational expectations lead to rapid market fluctuations.
