In April, MLF was renewed in the same amount and the interest rate remained unchanged, which was consistent with our expectations. Reducing loan interest rate and enterprise financing cost by releasing the reform potential of LPR should be the main force of monetary policy at this stage. The guidance of the national Standing Committee on the current monetary policy is very clear. Promoting the decline of LPR quotation by reducing the cost of bank liabilities should be the main force of monetary policy at this stage. In view of the fact that the national Standing Committee has promoted the central bank to reduce the reserve requirement and the limited role of MLF funds in reducing the cost of bank funds, MLF remains unchanged this month. If the central bank implements the general reduction today, it is expected that the LPR quotation will decline in April. We maintain our previous view. In the next step, the central bank may adjust the addition of the benchmark deposit interest rate to further release the potential of market-oriented interest rate reform.
The market liquidity is relatively abundant in the near future, and it is less necessary to continue MLF incrementally. In the past two weeks, the maturity yield of interbank certificates of deposit and 10-year Treasury bonds were below the policy interest rate of 2.85%, with an average of 2.51% and 2.77% respectively. Meanwhile, after entering April, the short-term liquidity tension gradually eased, and dr007 floated at the level of 1.94%, slightly lower than the policy interest rate of 2.1%. Therefore, on the whole, there is abundant liquidity in the near future, and the necessity of incremental renewal of MLF is low.
At this stage, it is less likely to promote the decline of entity financing costs and promote the expansion of new credit by reducing interest rates. According to the statements of the first quarter regular meeting of the central bank and the national regular meeting, ensuring "reasonable and sufficient liquidity" at this stage is the leading idea of the central bank's open market operation in the near future. When the US CPI exceeds 8.5% and has not yet reached the top, the pace of tightening by the Federal Reserve will be further accelerated. Under this expectation, other overseas central banks also quickly followed the tightening, such as the UK and Canada. In comparison, in addition to the upside down of the interest rate spread between China and the United States, the interest rate spread of China's 10-year Treasury bonds to the European Union, the United Kingdom and Germany is narrowing rapidly. The main obstacle to the formation of China's currency stability is how to reduce interest rates.
Reducing loan interest rate and enterprise financing cost by releasing the reform potential of LPR should be the main force of monetary policy at this stage. According to the guidance of the national standing committee meeting on April 13 (Wednesday), "encourage large banks with high provision level to orderly reduce the provision coverage and timely use monetary policy tools such as RRR reduction" is intended to release more funds to promote bank credit and reduce the cost of bank funds. Reducing the loan interest rate and guiding banks to transfer profits to enterprises by compressing the additional part of LPR are the main driving points of the current policy. If the central bank implements the general reduction today, it is expected that the LPR quotation will decline in April.
According to the addition of "efforts to stabilize the cost of bank liabilities" in the expression of market-oriented interest rate formation and transmission mechanism at the regular meeting of the central bank in the first quarter, it is expected to further adjust the measures related to the benchmark deposit interest rate. The central bank has adjusted the deposit interest rate policy since June 2021, that is, the self-discipline upper limit of deposit interest rate has been changed to add a point to the benchmark deposit interest rate, and no other measures have been introduced since it was determined. In the documents of the regular meeting of the first quarter, the central bank updated the marketization of interest rates as "improving the formation and transmission mechanism of market-oriented interest rates, optimizing the central bank's policy interest rate system, strengthening the supervision of deposit interest rates, focusing on stabilizing the cost of bank liabilities, giving full play to the efficiency of the reform of quoted interest rates in the loan market, and promoting the reduction of comprehensive financing costs of enterprises". It can be seen that the central bank may have made relevant policy reserves. At the same time, the national standing committee meeting on April 6 also proposed to "use market-oriented and legalized methods to promote financial institutions to reasonably transfer profits to the real economy". At present, the market-oriented reform of interest rate has been gradually improved. Combined with the statements in the documents of the Standing Committee of the United Nations and the central bank, it is expected to adjust the policies related to the benchmark deposit interest rate or the next policy deployment of the central bank.
Risk tip: the spread of the epidemic exceeded expectations, and China's foreign policies exceeded expectations
