The first bowl of “spicy powder” came to the table in the new year. At the same time, the market also ushered in the “big gift package” of interest rate reduction in early 2022. On January 17, the central bank announced two operating rules of medium term lending facility (MLF) and open market reverse repurchase on its official website, and announced that the bid winning interest rates of both operations decreased by 10 basis points.
After the reduction of MLF interest rate, the LPR trend that changed in December 2021 triggered discussion. It is generally believed in the industry that LPR is likely to be reduced synchronously this month, and varieties with a 5-year term and above linked to residents’ monthly mortgage may be reduced by 10 basis points simultaneously.
policy interest rate cut by 10 basis points
A month after the RRR cut, the central bank announced another interest rate cut. According to the official website of the central bank, in order to maintain the reasonable and abundant liquidity of the banking system, on January 17, the central bank carried out 700 billion yuan medium-term lending facility (MLF) operation and 100 billion yuan open market reverse repurchase operation. As 500 billion yuan of MLF and 10 billion yuan of reverse repurchase expired on the same day, the overall net investment in the open market in a single day was 290 billion yuan.
At the same time, the central bank also mentioned in the announcement that the bid winning interest rate of MLF operation and open market reverse repurchase operation decreased by 10 basis points. Among them, the bid winning interest rate of MLF is 2.85%, the previous value is 2.95%, and the term is 1 year; The bid winning interest rate of RMB 100 billion reverse repurchase is 2.10%, the previous value is 2.20%, and the term is 7 days.
This is also the first time that the central bank reduced the policy interest rate after reducing the 7-day reverse repo interest rate in March 2020 and the 1-year MLF interest rate in April 2020. In December 2021, the central bank also reduced the reserve requirement for the second time in the year and lowered the quoted interest rate (LPR) of one-year loan market. The market had a high voice for the interest rate reduction, but it continued to do MLF and reverse repurchase in excess, and cut the interest rate by 10 basis points, which was still slightly lower than the market expectation.
Wen bin, chief researcher of China China Minsheng Banking Corp.Ltd(600016) , pointed out that the central bank’s interest rate cut this month is one of a series of measures to support steady growth by monetary policy. This interest rate cut can be regarded as another important tool to support steady growth in the central bank’s monetary policy toolbox, and its policy signal and actual impact will be stronger than the decline of one-year LPR quotation in December 2021.
Wen Bin said that in the past, in the next month after the decline of one-year LPR, it is rare to cut interest rates to continue to guide the decline of LPR . On the one hand, because the downward pressure on China’s economy is still large and the policy demand is urgent, the interest rate cut in January reflects the requirements for the implementation of monetary policy; On the other hand, the 10 basis points of interest rate reduction is not small, which is the embodiment of increasing counter cyclical regulation, indicating the requirements of appropriate policy development and the organic combination of cross cyclical and counter cyclical policies.
According to Wang Qing, chief Macro Analyst of Dongfang Jincheng, the Fed will accelerate the pace of policy tightening under the pressure of high inflation, and may start raising interest rates as soon as March. In order to avoid the “collision” between China’s interest rate cut and the Fed’s interest rate increase, which will bring great downward pressure on the RMB exchange rate, the central bank cut interest rates in January, which also reflects the forward-looking operation of monetary policy to a certain extent.
LPR high probability synchronous down regulation
After the central bank cut the MLF interest rate, LPR trend this month has attracted wide attention . Previously, after keeping the LPR interest rate unchanged for 19 consecutive months and without reducing the MLF interest rate, the central bank reduced the one-year LPR quotation to 3.8% in December 2021 by 5 basis points. the LPR quotation of more than 5 years affecting the monthly supply of residential housing loans continues to remain unchanged, at 4.65%.
The LPR is the quotation formed by the quotation bank according to the MLF interest rate. After the MLF bid winning interest rate is lowered this month, based on the anchoring effect of MLF, can the LPR be lowered continuously this month? Is there any change in LPR quotation over 5 years?
Tang Jianwei, chief researcher of Bank Of Communications Co.Ltd(601328) Financial Research Center, pointed out that since the reduction of LPR quotation in December 2021 is small and asymmetric, it will be reduced in one year and unchanged in five years. the MLF operation interest rate was lowered by 10 basis points, which will guide the LPR quotation of this month to be lowered synchronously.
“Among them, the 1-year LPR may be reduced by 5 to 10 basis points, and the 5-year LPR may be reduced by 10 basis points simultaneously.” Tang Jianwei said that wide credit will help drive banks to reduce enterprise loan pricing, reduce financing costs of the real economy and boost financing demand; the decline of medium and long-term interest rates is also conducive to underpinning the real estate market and reducing the market wait-and-see mood.
Wen bin predicted that the 1-year and 5-year LPR quotations disclosed on January 20 are expected to decrease by 10 basis points simultaneously, which will help to promote the steady decline of financing costs of the real economy.
does not rule out the possibility of subsequent RRR reduction
Since 2021, the central bank has creatively used structural monetary policy tools and other financial service measures on the basis of maintaining a reasonable and sufficient total amount of money and credit, including reducing the reserve requirement, reducing the interest rate of small refinancing for supporting agriculture, launching carbon emission reduction support tools, supporting special refinancing for clean and efficient utilization of coal, etc.
At the press conference on small and micro enterprise financial services and green finance held by the central bank on December 30, 2021, sun Guofeng, director of the Monetary Policy Department of the central bank, pointed out that in 2022, the central bank will earnestly implement the spirit of the central economic work conference, grasp the three “stabilities” and further enhance the ability of finance to serve the real economy.
Sun Guofeng said that first, the total amount of money and credit increased steadily, and a variety of monetary policy tools were used comprehensively to keep the growth of money supply and social financing scale basically matched the economic growth. Second, steadily optimize the financial structure, give full play to the dual functions of the total amount and structure of monetary policy tools, make accurate efforts, and guide financial institutions to increase their support for the real economy, especially small and micro enterprises, scientific and technological innovation and green development. Third, the comprehensive financing cost has decreased steadily, improve the formation and transmission mechanism of market-oriented interest rate, give full play to the efficiency of the reform of quotation interest rate in the loan market, and promote the steady decrease of comprehensive financing cost of enterprises.
For the monetary policy trend in the next stage after the interest rate cut, Tang Jianwei said that does not rule out the possibility of subsequent RRR reduction. RRR reduction can slow down the downward pressure of the economy and smooth cross-year economic fluctuations, and the loose liquidity environment can also produce the effect of matching credit deregulation.
Wen bin believes that the policies that have been introduced are expected to continue to produce results. It is expected that the central bank will continue to use conventional operations such as reverse repurchase and MLF to maintain reasonable and abundant liquidity. At the same time, it will focus more on structural policies, accurately support important areas and weak links of the real economy, and deal with various internal and external risks such as the shift of the Federal Reserve’s monetary policy
