The net investment of 800 billion hit a new high in the year, why did the central bank greatly exceed the continuation of "spicy noodles"?

On December 15, the central bank launched a 50 billion yuan open market reverse repurchase operation and a 1.45 trillion yuan medium-term lending facility (MLF) operation, with interest rates unchanged at 1.8% and 2.5% respectively. Only 650 billion yuan of MLF expired this month, so a net investment of 800 billion yuan was realized, and the net investment volume hit a new high this year. 

MLF continues to significantly exceed the sequel, exceeding market expectations. The central bank pointed out in the announcement that the MLF operation is to maintain reasonable and sufficient liquidity in the banking system, hedge the impact of short-term factors such as government bond issuance and payment, and appropriately supply medium and long-term base money.

MLF has significantly exceeded the continuation of the referral, focusing on supporting the issuance of treasury bonds and stabilizing market liquidity expectations

For the MLF sequel this month, the increase was further expanded on the basis of 600 billion yuan last month, and reached 800 billion yuan. A number of industry insiders told the Shell financial reporter that the central bank's move was intended to support the issuance of additional treasury bonds. At the same time, the market capital has continued to tighten recently, and the demand for MLF operations by banks is also increasing.

Wang Qing, chief macro analyst of Oriental Jincheng, said that this is mainly due to the large-scale issuance of an additional 1 trillion treasury bonds, focusing on the coordination of monetary policy and fiscal policy, controlling the financing cost of treasury bonds, stabilizing the operation of the money market, and the central bank has significantly increased the medium and long-term liquidity injection.

Although the issuance of special refinancing bonds has slowed down, with the gradual implementation of the additional issuance of trillions of treasury bonds, the net financing of government bonds in November was still as high as 1.15 trillion yuan, a significant increase of 499.2 billion yuan year-on-year, which continued to have an impact on liquidity. 

Wen Bin, chief economist of Minsheng Bank, pointed out that under the requirement of strengthening "balanced delivery", there is also a large demand for credit at the end of the year, and medium and long-term liquidity is still under great pressure. At the same time, the expected RRR cut in the early stage has not been implemented for a long time, and the central bank's third-quarter monetary policy implementation report has put forward a rational view of credit increment and the goal of stabilizing the exchange rate, which has increased the market's concerns about liquidity. Under the easing of finance, stabilizing credit and the strengthening of the demand for funds across the year, the continuation of the MLF excess will help stabilize market expectations, alleviate the convergence of funds, stabilize the fluctuation of the tax period, strengthen the coordination of monetary and fiscal policies, hedge the impact of government bond issuance and payment, and create a good financial environment for fiscal easing and credit stabilization.

"Under the volume of government bonds, banks, as the main undertakers, have increased the pressure on liquidity assessment, and medium and long-term liquidity is facing a large gap. Wen Bin further pointed out that in order to implement the spirit of the recent important meetings, do a good job in cross-cyclical and counter-cyclical adjustment, guide financial institutions to increase support for the "three major projects" and "five major articles" areas, and better support the stabilization of real estate and localized bonds, it is necessary to maintain the soundness of monetary policy, maintain reasonable and sufficient liquidity, and enhance the sustainability of financial support for the real economy. The continuation of the MLF will help alleviate the shortfall of medium and long-term funds for banks, especially large banks, further consolidate the support for the real economy, and also contribute to the coordination and cooperation of various policy implementation. 

In addition, Dong Ximiao, chief researcher of Zhaolian Financial, also pointed out that the central bank provides more liquidity by increasing open market operations, which helps to maintain reasonable and abundant market liquidity and ensure the smooth operation of the financial market at the end of the year and the beginning of the year.

Recently, the interbank CD interest rate has remained high, far exceeding the MLF rate, which means that the demand for MLF by banking institutions has increased significantly. According to the data, on December 14, the yield on the 1-year AAA interbank certificate of deposit fluctuated to 2.61%, but it was still well above the 1-year MLF rate of 2.5%. The widening of the interest rate gap between the two has led to an increase in banks' demand for MLF, and the central bank's substantial excess of MLF is also the result of the balance between supply and demand in the market.

Expand the scale of MLF sequels The probability of a RRR cut in the near future will decrease

In the view of a number of interviewed industry insiders, the continuous large-scale increase in MLF sequels means that the probability of the central bank reducing the RRR for the additional issuance of treasury bonds is decreasing. 

Wen Bin pointed out that under multiple considerations such as improving efficiency, air defense and currency stabilization, the space of traditional aggregate tools has narrowed, and MLF and other incremental sequels have become the current policy choice. Compared with RRR cuts, the central bank is more inclined to increase OMO and MLF in the near future to stabilize liquidity. With the narrowing of traditional policy space, the decline in effectiveness, and the consideration of improving efficiency, preventing the rotation of defense, and stabilizing the exchange rate, the central bank may use more open market operations and other means to balance liquidity, while structural tools are also expected to play a greater role in achieving "flexibility, moderation, precision and effectiveness".

"However, it is still possible to land a comprehensive RRR cut in the short term. Wang Qing believes that as of this month, the balance of MLF has reached 7,075 billion yuan. Historical rules show that when the MLF balance exceeds 5 trillion yuan, the probability of the central bank cutting the reserve requirement ratio will increase accordingly. This is mainly to optimize the capital structure of the banking system and enhance the soundness of bank operations.

Wang Qing further pointed out that the maturity of MLF in the first quarter of 2024 will continue to be at a high level, and the possibility of the central bank cutting the reserve requirement ratio to replace part of the mature MLF will not be ruled out at that time. This can also take into account the liquidity arrangements during the Spring Festival, and at the same time show that monetary policy will continue to work hard in the direction of stable growth, which will help boost market confidence and consolidate the positive momentum of economic recovery. It is worth noting that after the latest RRR cut in September, the current weighted average reserve requirement ratio of financial institutions is about 7.4%, which is still some room for the lower limit of the reserve requirement ratio of 5.0%, which is widely estimated by the market.

Zhou Maohua, a macro researcher at the financial market department of Everbright Bank, also said that from the perspective of the internal and external environment of the mainland economy, aggregate tools such as RRR cuts, and structural tools such as MLF, re-lending, open market operations, and PSL are still in the central bank's toolbox.

Zhou Maohua pointed out that on the one hand, the mainland adheres to a prudent monetary policy, the policy is in the conventional range, prices are running at a low level, the balance of payments is basically balanced, the financial system remains resilient and flexible, and the policy space is still sufficient; on the other hand, the domestic need to further stimulate the vitality of micro subjects, strengthen coordination with fiscal and other policies, better boost market expectations, promote the steady recovery of the economy and the improvement of quality and efficiency, and continue the loose pattern of prudent monetary policy. Through the combination of aggregate and structural tools, the cost of investment and consumption will be reduced to meet the financing needs of the real economy.

4 consecutive months of parity continuation Interest rate cuts are still in the toolbox, but the need is weak at the moment

The MLF interest rate in December was unchanged from the previous month, which has remained unchanged for four consecutive months, in line with previous market expectations.

"Interest rates have been cut twice this year, and there is no need to adjust the policy rate for the time being, coupled with the reduction of the old and new mortgage loan interest rates. Wen Bin believes that the MLF interest rate remains unchanged, which is also to alleviate the downward pressure on the pricing of banks' assets, maintain bank interest margins and profits at a reasonable level, and resolve real estate and local debt risks for banks to retain their strength.

Wen Bin further pointed out that the MLF interest rate is conducive to waiting for the completion of the repricing of deposit interest rates, maintaining the level of interest margins, and maintaining the sound and sustainable operation of banks, and also helps banks to free up room for better cooperation with the implementation of various policies. At the same time, keeping the interest rate unchanged is also conducive to improving the efficiency of capital operation, and to a certain extent, preventing the arbitrage of funds caused by the low interest rate of corporate loans.

Dong Ximiao pointed out that from the perspective of price, the winning interest rates of reverse repo and MLF were the same as those of the previous month, which means that the probability of the loan market prime rate (LPR) remaining unchanged this month is high. The LPR is added on the basis of the 1-year MLF, and the winning interest rate of the MLF has not changed, and the LPR is unlikely to change. At present, both corporate lending rates and consumer credit interest rates are at historic lows. Keeping the LPR unchanged will help banks keep interest margins basically stable, enhance their ability to serve the real economy and develop steadily.

As for whether interest rates will continue to be cut in the future, Wang Qing pointed out that this will mainly depend on the macroeconomic situation, so this possibility cannot be completely ruled out. The Central Economic Work Conference in December required that in 2024, it is necessary to continue to "promote the steady and moderate decline of comprehensive social financing costs", and domestic prices will remain at a low level for a period of time in the future, and the Fed's shift to interest rate cuts in 2024 will further reduce the constraints on the flexible operation of domestic monetary policy.

Wang Qing expects that the MLF interest rate may be cut once in the first half of 2024, which is in line with the requirements to guide the macro interest rate level and promote the return of economic growth to the potential level.

Beijing News Shell Financial Reporter Jiang Fan

Edited by Wang Jinyu

Proofread by Zhao Lin