The central bank has put nearly 1 trillion yuan in money, sending an important signal

On Monday (January 15), the central bank carried out a one-year MLF operation of 995 billion yuan, with an interest rate of 2.5%. As 779 billion yuan of one-year MLF expired on Tuesday, the central bank invested a net 216 billion yuan in the renewal of MLF in January.

The market generally expects an interest rate cut or RRR cut in January, but the current MLF operating interest rate is 2.5%, the same as the previous period, and there will be basically no interest rate cut this month. And because the central bank has invested a net of 216 billion yuan, it is unlikely that the RRR will be cut again this month. 

The MLF operation shows that the central bank still maintains a relatively prudent monetary policy approach.

However, the market still generally expects that the RRR and interest rate cuts will be followed by a cut. After the rate cut failed, bonds rose by 1.5bp and fell rapidly, and now they are down 0.5bp compared to last Friday, indicating that everyone still has very high expectations for interest rate cuts.

There are two reasons why the central bank did not cut interest rates this time, one is to ease the pressure on banks' net interest margins. Now, if interest rates are cut, the lending interest rate will fall, and the income of commercial banks will be affected, and the net interest margin will definitely narrow, and the overall net interest margin of commercial banks is very low at present, and this will affect financial stability. Second, the monetary policy has entered an observation period. Recently, the central bank has issued an additional 350 billion PSL, and the state has also issued an additional 1 trillion national bonds. The money is gradually coming into circulation, and management is watching the effects of these policies to decide when to cut interest rates.

In the past two days, the central bank also released the latest financial data, at the end of December 2023, the balance of broad money (M2) was 292.27 trillion yuan, a year-on-year increase of 9.7%.

The growth rate of M2 has dropped from double digits to single digits again, which once again indicates that the monetary policy remains in a stable state, and at the same time, it also indicates that some of the deposit funds may have been transferred to wealth management, such as money market funds and bank wealth management.

The above information illustrates:

1. In 2024, the monetary policy will remain prudent, and there will be no "flooding".

2. There will definitely be RRR and interest rate cuts in 2024, and the number and frequency may be determined according to the trend of the economy. The consensus expectation now is that there will be a RRR cut or interest rate cut in the first quarter.