PBOC “rate cuts" three years first drop MLF interest rate Structural easing will continue to reduce financing costs to support the real economy

After the reform of the China Loan Market Price (LPR), the People’s Bank of China (PBOC) adjusted the medium-term loan facility (MLF) interest rate for the first time

The central bank resumed the operation of the one-year MLF operation of 400 billion yuan (RMB, the same below) yesterday, and lowered the winning bid rate by 5 basis points from 3.30% to 3.25%, which exceeded market expectations. The interviewed analysts believe that the unexpected “rate cuts" will help boost market sentiment, stabilize and guide market expectations, and guide LPR interest rates down. In the context of global monetary easing, China’s structural interest rate cuts have already landed, and the central bank is expected to continue to support the real economy through “structural easing” policies.

Ta Kung Pao reporter Ni Yuchen

The “rate reduction" was the first time since February 2016 in the Mainland. Recently, the central bank did not follow the US Federal Reserve’s immediate interest rate cut. For the unexpected announcement of the downgrade of MLF interest rate yesterday, Shen Jianguang, chief economist of Jingdong Digital Technology, believes that the “reduction of interest rate" policy of the People’s Bank of China has officially landed. Analysts believe that this “reduction of interest rates" does not mean that the mainland’s monetary policy has turned loose. Meng Xiangjuan, chief analyst of Shenwan Hongyuan Bonds, pointed out that the MLF interest rate adjustment does not mean that market funds will go down in the short term. From the perspective of operational volume, the central bank’s policy operations as a whole continued to be “stable". Yang Yicheng, a senior analyst at the Bank of Communications Financial Markets Business Center, said that from the five-point cuts, the central bank’s monetary policy tone has not turned to “loose”.

Monetary policy has not turned to full easing

Pork prices have risen rapidly before, and it is necessary to guide market expectations by lowering MLF interest rates in the context of rising inflation expectations. According to Lu’s policy analysis by Industrial Bank and Huafu Securities’ chief economist, the above method can maintain the reasonable stability of the medium and long-term capital interest rate and avoid the sharp rise in the cost of inter-bank funds. At the same time, the LPR interest rate linked to it is led down. Yang Yicheng believes that in the context of structural inflation, reducing the financing costs of the real economy and helping the real economy to remain stable remains the focus.

China yesterday for the expiration of MLF 400 billion yuan, the scale is less than the expiration of 403.5 billion yuan on the same day, at the same time, there is no reverse repurchase operation, but under the pressure of market funds ease, Shanghai Bank Interbank The short-term variety of market interest rate (SHIBOR) declined, with the most obvious decline of 19.5 basis points for overnight varieties, which was reported at 1.8800%; followed by 14 days, down 7.6 basis reports for 2.4560%; the interest rates for medium and long-term varieties over half a year increased (see attached table).

Meng Xiangjuan believes that the current overall financial situation of the interbank market is still plentiful. Given the relatively limited guiding effect of the MLF interest rate on the capital interest rate, it is necessary to pay attention to the operation of the open market (OMO) volume and price in the future. She also pointed out that from the current season to January next year, CPI is expected to continue to climb to more than 4%, but in February it may begin to fall. Based on the comprehensive PMI and industrial enterprise benefit data, the current real economy demand is still weak, given this monetary policy. There is still room for further relaxation.

CPI is expected to rise to above 4%

The central bank re-released the new LPR interest rate mechanism in August this year and announced new interest rate arrangements on the 20th of each month. According to data released on September 20, the 1-year interest rate was lowered to 4.2% from 4.25% announced in August; The 5-year interest rate was flat at 4.85%. Yang Yicheng is expected to lower the MLF interest rate and will also drive down the LPR quotation on the 20th of this month. As for next year, under the conditions that the property market is not relaxed, small and medium-sized banks are “breaking just against" and “non-standard" are strictly controlled, the risk-free interest rate is expected to remain in the downside.

Shen Jianguang believes that the central bank has the need to cut interest rates, whether it is due to short-term “steady growth" considerations or long-term dredges of monetary policy transmission mechanisms and lower actual financing costs. The main contradiction of the central bank’s monetary policy decision is not the “inflation" factor. In the future, the central bank will continue to support the real economy through the “structural easing" policy, and its policy orientation will not be “tightened by the loose."


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