Revealing the policy trend in the next stage! The wording of the regular meeting of the Monetary Policy Committee of the Central Bank in the first quarter was fine-tuned

For a long time, the regular meeting of the Monetary Policy Committee of the People's Bank of China (hereinafter referred to as the "central bank") has been regarded as a "weather vane" of monetary policy, and changes in monetary policy wording often indicate the next stage of monetary policy trends.

A few days ago, the Monetary Policy Committee of the Central Bank held its regular meeting for the first quarter of 2024. The meeting believed that since the beginning of this year, the macro policy has adhered to the principle of stability and seeking progress while maintaining stability, the prudent monetary policy is flexible, moderate, precise and effective, strengthened counter-cyclical adjustment, and comprehensively used interest rates, reserves, re-lending and other tools to effectively serve the real economy, effectively prevent and control financial risks, and create a suitable monetary and financial environment for the economic rebound.

The "Securities Daily" reporter combed and found that compared with the regular meeting in the fourth quarter of 2023, the wording of this regular meeting has been adjusted, and some new formulations have appeared. For example, the expression "cross-cyclical adjustment" was removed, and it was clearly stated that it was necessary to "enrich the monetary policy toolbox", and it was also proposed that "in the process of economic recovery, we should also pay attention to changes in long-term yields".

There is room for RRR and interest rate cuts

For the study and judgment of the external environment, the regular meeting said that "the current external environment is becoming more complex and severe, the momentum of world economic growth is insufficient, inflation is still sticky, and interest rates in developed economies remain high", which is different from the regular meeting in the fourth quarter of last year "The current external environment is becoming more complex and severe, international economy, trade and investment are slowing down, inflation is showing a trend of falling from a high level, and interest rates in developed countries remain high".

Zhang Yu, deputy director and chief macro analyst of Huachuang Securities Research Institute, said in an interview with the "Securities Daily" reporter that from a global perspective, one of the most important variables of the global macro economy in 2024 is the strength and magnitude of the Federal Reserve's interest rate cuts. Recently, the U.S. manufacturing PMI has returned to the expansion range, and the strong economy has caused the market to worry about the "reflation" of the United States, which has also shaken the market's expectations for whether the U.S. can successfully deliver interest rate cuts in the middle of the year. From the perspective of interest rate cut expectations, the Fed's expectations of not cutting interest rates in May and June have increased since the beginning of the year. As of April 3, the probability that the Fed will not cut interest rates in May reached 99.3%. If the Fed's interest rate cut is postponed again, the global high nominal interest rate is expected to further extend the constraints on the mainland's monetary policy.

The regular meeting also said that "the mainland's economic operation continues to pick up and improve, and high-quality development is solidly promoted, but it still faces challenges such as insufficient effective demand and weak social expectations". In this context, "it is necessary to seek progress in stability, promote stability with progress, establish first and then break down, and constantly consolidate the foundation for stability and improvement." We will accurately and effectively implement a prudent monetary policy, pay more attention to counter-cyclical adjustment, give better play to the dual functions of monetary policy tools, and strive to expand domestic demand, boost confidence, and promote a virtuous cycle of the economy."

Compared with the "accurate and effective implementation of prudent monetary policy, paying more attention to counter-cyclical and cross-cyclical adjustment" at the regular meeting in the fourth quarter of 2023, this regular meeting deleted "cross-cyclical adjustment" and focused on "countercyclical adjustment".

Wang Qing, chief macro analyst of Oriental Jincheng, said in an interview with the "Securities Daily" reporter that this means that the next monetary policy will continue to work hard in the direction of stable growth, and there is room for RRR and interest rate cuts. It is expected that the MLF (medium-term lending facility) operating interest rate may be lowered for the first time this year around the middle of the year, and the comprehensive RRR cut is also expected to land again. This will not only help guide the growth of credit and social finance, promote the steady decline of corporate financing and household credit costs, but also provide a favorable environment for the resolution of local debt risks this year.

"This shows that the importance of countercyclical adjustment has increased, and it also means that a more vigorous monetary policy may still be on the way, and RRR and interest rate cuts are still expected. Zhang Liyun, director of the Financial Market Research Center of the Minsheng Bank Research Institute, told the "Securities Daily" reporter.

Structural tools will continue to gain momentum

The term "enriching the monetary policy toolbox" was also added to the meeting.

In Wang Qing's view, this reflects the specific requirements of this year's "Government Work Report" on "strengthening the forward-looking and enriching the toolbox of research reserve policies". It is expected that in the process of doing a good job in the "five major articles", the central bank will innovate structural monetary policy tools in a timely manner as needed. These tools are not only a way to inject base money, but also to guide the flow of funds more precisely.

At the same time, the regular meeting also clearly stated that "appropriately increase the re-lending and re-discounting quota for supporting agriculture and small enterprises, make full use of carbon emission reduction support tools, and set up scientific and technological innovation and technological transformation re-loans." Increase financial support for large-scale equipment renewal and trade-in of consumer goods".

Zhang Liyun believes that the follow-up related structural tools will continue to exert force, further enhance the effectiveness of monetary policy in promoting economic restructuring, transformation and upgrading, and the transformation of new and old kinetic energy, balance short-term economic growth and long-term structural optimization, and more reflect the "precise" requirements.

It is worth mentioning that the central bank announced on April 7 that it would set up re-loans for scientific and technological innovation and technological transformation to encourage and guide financial institutions to increase financial support for small and medium-sized technology-based enterprises, technological transformation and equipment renewal projects in key areas. The reloan amount for scientific and technological innovation and technological transformation is 500 billion yuan, with an interest rate of 1.75% and a term of 1 year, which can be extended twice and each time for a period of 1 year.

While continuing the statement of "promoting the steady and moderate decline of corporate financing and household credit costs", the regular meeting also proposed that "in the process of economic recovery, we should also pay attention to the changes in long-term yields".

Zhang Liyun believes that in the face of the current economic rebound environment and the subsequent increase in the supply of ultra-long-term treasury bonds, the central bank proposed for the first time to "pay attention to the changes in long-term yields", or aim to break the inertia of the downward trend of bond market interest rates and guide the market to return to rationality;

"Since February, under the combined effect of multiple factors such as the landing of a comprehensive RRR cut and the expectation of policy easing, the monthly average of the 10-year treasury bond yield has fallen to 2.41% and 2.31% one after another, during which it once hit the lowest in more than 20 years, and deviated significantly from the corresponding policy interest rate level, and its trend diverged from the economic rebound momentum at the beginning of the year. Wang Qing expects that in the later stage, the regulator may promote the return of 10-year treasury bond yields to the normalized fluctuations around the policy rate by curbing the idling of funds and effectively guiding market expectations, and will also pay more attention to the economic implications behind the low long-term yields.

(Source: Securities Daily)

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