How likely is it that the "big move" of interest rate cuts and RRR cuts will be used before the end of the year? How to move forward in the next step of "Baojiao Building"? What is the implementation of policy-developing financial instruments? What is the future trend of the RMB exchange rate?
A few days ago, the PBOC released China's Monetary Policy Implementation Report for the Third Quarter of 2022 (hereinafter referred to as the "Report") authoritatively explained the above hot issues and released heavy policy signals. These references in the report are noteworthy:
1. Provide a suitable liquidity environment for consolidating the economic stabilization and upward trend and doing a good job in the year-end economic work.
2. Adhere to not engaging in "flood irrigation", not issuing excessive currency, and providing more powerful and higher-quality support for the real economy.
3. Price growth is generally moderate, but we must be wary of future inflation rebound pressure. Attach great importance to the potential for future inflation rise; External imported inflationary pressures remain; It may also increase structural inflationary pressure in the short term, which should be closely monitored, strengthened monitoring and judgment, and vigilant against future inflation rebound pressure.
4. Promote the reduction of comprehensive financing costs and personal consumer credit costs of enterprises.
5. As of the end of October 2022, a total of 740 billion yuan has been invested in the two batches of financial instruments.
6. From the perspective of the interest rate of commercial personal housing loans actually issued, the interest rate of newly issued personal housing loans in October 2022 was 4.3%, down 4 basis points from the previous month and 133 basis points from the end of the previous year.
7. Promote the accelerated use of special loans for guaranteed delivery of buildings and appropriately increase efforts as necessary, guide commercial banks to provide supporting financing support, safeguard the legitimate rights and interests of housing consumers, and promote the stable and healthy development of the real estate market.
8. Accelerate the construction of a multi-level bond market system, continue to expand the pilot of financial bond balance management and macro-prudential management, promote the development of over-the-counter bond business, provide diversified bond investment transactions, custody and settlement channels for small and medium-sized financial institutions, and improve the liquidity of the bond market. Further improve the bond underwriting and market-making mechanism, enhance the linkage between the primary and secondary markets, and improve the effectiveness and transmission function of bond pricing.
How likely is it that interest rate cuts and RRR cuts will be cut before the end of the year?
As a policy vane for the next phase, there have been some changes in the report's formulation of monetary policy.
The report once again emphasizes that we should increase the implementation of prudent monetary policy, do a good job in cross-cycle adjustment, take into account short-term and long-term, economic growth and price stability, internal balance and external balance, and adhere to not engaging in "flood irrigation" and not overissuing currency. At the same time, it is emphasized that structural monetary policy tools are focused, reasonable and moderate, and there are advances and retreats.
In addition, the report added expressions such as "to consolidate the economic stabilization and upward trend, do a good job in the year-end economic work to provide a suitable liquidity environment, pay close attention to the domestic and foreign economic and financial situation and the changes in the monetary policy of major central banks, strengthen the analysis and monitoring of the liquidity supply and demand situation and financial market changes, and flexibly carry out open market operations".
Wang Qing, chief macro analyst of Oriental Jincheng, believes that this means that in the short term, under both internal and external considerations, monetary policy will mainly be directed through structural tools, including lowering 5-year LPR quotations, increasing directional support for real estate, etc., while focusing on stabilizing the foreign exchange market, and paying attention to the potential possibility of future inflation heating, the possibility of implementing interest rate cuts and RRR cuts before the end of the year is small.
Are inflationary pressures manageable?
On the one hand, external imported inflationary pressures remain; On the other hand, there is a possibility of rising structural inflationary pressures in China.
In this regard, the report proposes to "attach great importance to the potential possibility of future inflation rise"; It is also pointed out that factors such as strong demand for pork procurement and heating in winter, dislocation of the Spring Festival, etc., especially after more accurate epidemic prevention and control, consumption momentum may be released rapidly, and structural inflation pressure may also increase in the short term, which should be closely monitored, strengthened monitoring and judgment, and vigilant against future inflation rebound pressure.
Ding Yujia, a researcher at Zhixin Investment Research Institute, believes that although domestic prices will face structural and imported inflationary pressure in the future, there may be a large staged increase, but the possibility of evolving into comprehensive inflation is low. First, PPI is expected to remain low from the year to 2023, and the driving effect on CPI is weak. Secondly, the mainland has a relatively complete industrial chain and supply chain, and attaches great importance to the stability and security of the industrial chain and supply chain, and the policy of ensuring supply and stabilizing prices for key commodities that affect residents' lives and price levels, such as grain, pork and energy (especially coal), has a good effect, which is conducive to the operation of price increases in a reasonable and controllable range in the medium and long term. Finally, the mainland's adherence to a prudent monetary policy of not engaging in "flood irrigation" and not overissuing money has provided space for coping with future uncertainty and laid a solid foundation for price stability.
How does the exchange rate move in the future?
Regarding the RMB exchange rate, the report focuses on two aspects: exchange rate liberalization and expectation management.
The report pointed out that the next step is to steadily deepen the market-oriented reform of the exchange rate, improve the managed floating exchange rate system based on market supply and demand, adjust with reference to a basket of currencies, adhere to the decisive role of the market in the formation of the exchange rate, enhance the flexibility of the RMB exchange rate, strengthen the management of expectations, adhere to bottom-line thinking, do a good job in monitoring and analyzing cross-border capital flows and risk prevention, maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, and give play to the function of exchange rate adjustment macroeconomics and automatic stabilizer of the balance of payments.
Since November, the RMB exchange rate has rebounded sharply to the upside, with the central price rising by about 3% in the past week, in contrast to the previous phased depreciation, and the exchange rate flexibility has been further enhanced.
Since the beginning of this year, the central bank has repeatedly launched the tool to stabilize the exchange rate. For example, reduce the foreign exchange deposit reserve ratio, increase the foreign exchange risk reserve ratio, etc.
Chang Ran, a senior researcher at Zhixin Investment Research Institute, believes that these policies clearly release the signal that the monetary authorities have reduced the expectation of RMB depreciation and maintained exchange rate stability, indicating the position of adhering to the bottom-line thinking of the exchange rate. In the future, the epidemic prevention and control policy will continue to be optimized, domestic demand is expected to be gradually released, and the long-term economic fundamentals will not change, which will support the smooth operation of the RMB exchange rate within a reasonable range. Market entities should firmly establish the concept of exchange rate risk neutrality, fully realize that the point of exchange rate is inaccurate, and two-way fluctuations are the norm.
Can the cost of personal consumer credit be reduced?
According to the latest data released by the central bank, the weighted average interest rate of new corporate loans issued in September was 4.0%, down 0.16 percentage points from June, the lowest on record, continuing the rapid downward momentum since the beginning of the year.
In terms of cost reduction, the expression was adjusted from "promoting the reduction of comprehensive financing costs of enterprises" in the second quarter to "promoting the reduction of comprehensive financing costs of enterprises and personal consumer credit costs".
Wang Qing expects that with the rise in demand for stable growth in the fourth quarter, regulators continue to emphasize "promoting the reduction of corporate financing and personal consumer credit costs", and the effectiveness of LPR reform will be further released in the future, which is marked by the fact that the MLF interest rate remains unchanged, and the 5-year LPR quotation may continue to be lowered by 15~30 basis points before the end of the year.
According to data monitored by Rong360 Digital Technology Research Institute, in September 2022, the average interest rate of bank whole deposit and single deposit was 1.523%, the average interest rate of 6 months was 1.746%, the average interest rate of 1 year was 2.031%, the average interest rate of 2 years was 2.533%, the average interest rate of 3 years was 3.085%, and the average interest rate of 5 years was 3.05%. Compared with the previous month, the average interest rate of all maturity of time deposits fell sharply, with the 3-month decline of 2.5BP, the 6-month decline of 3.6BP, the 1-year decline of 5.8BP, the 2-year decline of 6.7BP, the 3-year decline of 11.3BP and the 5-year decline of 4.8BP. The average interest rate on 3-year deposits fell the most.
Wang Qing believes that the effect of the reduction of deposit interest rates in September was further released, and the effective reduction of residential housing loan interest rates is the key to promoting the property market to stabilize and recover as soon as possible, helping to stabilize growth and control risks in the fourth quarter.
What is the effect of the two batches of policy-developed financial instruments?
In June this year, the People's Bank of China supported the China Development Bank and the Agricultural Development Bank of China to set up financial instruments totaling 300 billion yuan to supplement capital for major projects, including new infrastructure, or to bridge the capital of special debt projects.
On August 24, the executive meeting of the State Council proposed that on the basis of the first batch of 300 billion yuan of financial instruments that have fallen into the project, more than 300 billion yuan of quota will be added, and the Export-Import Bank of China will be added as a financial instrument support bank.
How effective have the tools been used so far? The central bank said that as of the end of October 2022, the two batches of financial instruments have invested a total of 740 billion yuan, which has strongly supplemented the capital of a number of major projects in the fields of transportation, energy, water conservancy, municipal administration, industrial upgrading and infrastructure.
Supporting financing is also actively following up. The central bank said that policy and development banks are encouraged to make good use of the new 800 billion yuan of credit lines this year, and guide commercial banks to follow up the supporting financing of major projects through syndicated loans and other means. At present, the cumulative credit line of banks for projects supported by financial instruments has exceeded 3.5 trillion yuan, effectively meeting the diversified financing needs of project construction.
Funding is only the first step in forming a physical workload, and the social and economic benefits of major projects can only be realized. In terms of accelerating the formation of physical workload, the central bank said that the first batch of projects supported by 300 billion yuan of financial instruments have all started construction in the third quarter of this year, and the second batch of projects supported by financial instruments will also start construction in batches in the fourth quarter of this year as planned, striving to form more physical workload within the year.
In the next step, the central bank will cooperate with urging the start of project construction and strengthening factor guarantees, accelerate the arrival of other capital, promote the use of financial instruments to accelerate the payment and use of funds, support the follow-up of project supporting financing, promote more effective investment to accelerate the landing within the year, and consolidate the trend of economic stabilization and upward trend.