Events
On January 17, 2022, the central bank maintained the reasonable and sufficient liquidity of the banking system, and carried out RMB 700 billion medium-term loan facility (MLF) operation and RMB 100 billion open market reverse repurchase operation. The bid winning interest rate of medium-term lending facility (MLF) operation and open market reverse repurchase operation decreased by 10 basis points.
Comments
MLF price and volume are in full force, and the intention of wide currency steady growth is obvious. On the 17th, the central bank announced that it would cut the 1-year MLF and 7-day Omo interest rate by 10bp at the same time, slightly exceeding market expectations. Previously, when the central bank lowered the one-year LPR interest rate on December 20, we said that the central bank's wide monetary cycle has just opened. The first quarter of this year is an important window period of monetary policy. There is a high probability that the central bank will cut interest rates again to reduce costs and support the economy. Meanwhile, observing the market interest rate since January, the one-year interbank deposit certificate interest rate has been continuously lower than the one-year MLF interest rate and the dr007 interest rate has been continuously lower than the Omo 7-day interest rate, and the market expectation of interest rate reduction is sufficient. Therefore, the overall interest rate cut is within market expectations, but the range is more relaxed than expected. The substantial and comprehensive interest rate cut reflects the purpose of the central bank to stimulate the economy and reduce costs. The current economic situation is still differentiated, with a slight rebound on the production side and an improvement in the investment margin on the demand side, but a slowdown in retail sales. The interest rate cut is conducive to reducing the cost of enterprise financing, the cost of residents' liabilities and the cost of living such as residents' housing loans. In addition, the central bank extended the MLF of 700 billion yuan on the 17th, and 500 billion MLF expired on the 15th of the month, realizing a net investment of 200 billion yuan. The MLF launch exceeded market expectations. Since the central bank lowered the reserve requirement last December and released 1.2 trillion yuan of long-term funds to replace MLF, combined with the stable capital level at the beginning of the year, the market expects that the renewal volume will not exceed the maturity value. However, the central bank's net investment of 200 billion yuan this time reflects the central bank's determination to take great care of the pre holiday capital and to hedge the tight capital demand caused by the issuance of local bonds. At the same time, it provides basic monetary support for the good start of credit in the first quarter and helps broaden credit.
LPR has a high probability of simultaneous reduction, focusing on the possibility of another interest rate reduction in January and February. The central bank cut interest rates slightly more than expected, and the time point is relatively ahead, which is in line with the requirements of moderate forward policy strength of the central bank. In the current situation of great economic disturbance caused by the epidemic and insufficient market confidence in stable growth, timely interest rate reduction is conducive to stabilizing the confidence of micro subjects. In the follow-up, the 1-year and 5-year LPR interest rates to be announced on the 20th will be lowered at the same time. After the RRR reduction in November, the one-year LPR was lowered and the five-year LPR was not adjusted, mainly because the bank's cost reduction was not enough to drive the same decline in 1 and 5 years, and did not want to send too strong signals of real estate relaxation to the market. However, the MLF interest rate, as the basic interest rate of LPR, has a great impact on the trend of LPR. At the same time, the recent real estate demand has weakened significantly. Therefore, we predict that on the 20th, the 1-year LPR will be reduced by 10bp simultaneously, while the 5-year LPR will be reduced by 5bp or 10bp. In addition, after the interest rate cut cycle is started, the interest rate cut operation is usually more than once. In the second half of 2019, the central bank launched the counter cyclical adjustment policy, underpinning the economy and reducing interest rates for many times. Therefore, we believe that it is possible to cut interest rates again in January and February. February is the empty window period of economic data. The credit data released in late January and late February may become an important observation indicator of whether the central bank will cut interest rates.
