The first quarter monetary policy report was released.
On the evening of May 10, the People's Bank of China (PBOC) released the Report on the Implementation of China's Monetary Policy for the First Quarter of 2024 (hereinafter referred to as the "Report"), which explained the policy orientation and key arrangements for the next stage on the basis of systematically reviewing the policies and results in the first quarter and comprehensively analyzing the current economic and financial situation.
So, what hot spots does the central bank's latest report respond? What are the policy orientations and priorities for the next stage?
Accurately understand "where the money goes, where the money is"
So, what is money?
According to the report, the so-called "money" is actually money. According to the definition of the mainland, the money supply is the money stock of the whole society, and is the sum of the financial instruments that assume the means of circulation and payment at a certain point in time.
At present, the currency of the mainland is divided into three levels: M0, M1 and M2. M0 is often referred to as "cash" and has the highest liquidity; M1 is M0 plus the demand deposits of enterprises and institutions with slightly weaker liquidity; M2 refers to M1 plus time deposits and resident deposits of enterprises and institutions with weaker liquidity.
According to the data of the central bank, at the end of March this year, the balance of M2 was 249.77 trillion yuan, a year-on-year increase of 9.7 percent, and the growth rate was 0.5 and 0.3 percentage points higher than that at the end of last month and the same period last year, respectively; the balance of M1 was 64.51 trillion yuan, a year-on-year increase of 4.7 percent, the growth rate was the same as that at the end of last month, but 2.4 percentage points lower than the same period last year; and the balance of M0 was 9.51 trillion yuan, a year-on-year increase of 9.9 percent. In the first quarter of this year, the net cash injection was 431.7 billion yuan.
In the report, column 2 specifically analyzes the flow of bank deposits and loans, and answers the questions of "where does the money go, where does the money go" and the market's questions about "why the trend of financial and economic data is inconsistent" with detailed data. According to the report, loans are mainly invested in enterprises and the supply side of the real economy, while deposits are mainly in the household sector.
Specifically, the central bank can appropriately guide "where the money goes", but it mainly depends on the needs of economic entities themselves. According to the analysis of the report, in the past, mainland loans were mainly invested in enterprises, and in terms of industry and term structure, they were mainly in heavy asset areas such as infrastructure, real estate, and manufacturing, and most of them were medium and long-term loans.
Some industry insiders said that in recent years, the central bank has taken the initiative to guide capital investment, and with the acceleration of economic transformation and upgrading, the credit structure is also being optimized. However, due to the lack of effective consumer demand, the supply side of the real economy and the investment sector have received more financing, which also explains to some extent why inflation in the mainland remains low in the context of high global inflation.
In addition, it will take time for the economic cycle to recover, and at present, part of the money has been deposited in the residential sector. At the same time, due to the impact of the epidemic and the decline in risk appetite, enterprises and residents are more inclined to deposits with more stable returns, especially time deposits, at the mercy of assets, resulting in less "live money" in the economic cycle and poor circulation, which also explains why people and enterprises are short of money in micro feelings, while the total amount of money in the financial system is still increasing.
The above-mentioned industry insiders said that the current money stock has been quite a lot, and the key to revitalizing the stock and smoothing the circulation is to solve the problem. In the future, the focus of macroeconomic policy should shift from increasing supply in the past to improving consumer demand and promoting the balance between supply and demand.
The main idea of monetary policy in the next stage
For the main ideas of monetary policy in the next stage, the report pointed out that it will maintain the soundness of monetary policy, enhance the consistency of macro policy orientation, strengthen counter-cyclical and cross-cyclical adjustment, increase support for the real economy, and effectively consolidate and enhance the positive trend of economic recovery. Specifically:
The first is to maintain a reasonable growth in financing and monetary aggregates. We support the accelerated development of direct financing and continue to drive the development of the corporate credit bond and financial bond markets. Flexibly and effectively carry out open market operations, combined with the use of a variety of monetary policy tools, to maintain reasonable and sufficient liquidity in the banking system and the stable operation of money market interest rates. Maintain the supply of money and credit in line with the effective financing needs for the high-quality development of the real economy. Intensify efforts to revitalize the stock of financial resources, and pay close attention to the precipitation and idling of funds.
Second, we should give full play to the guiding role of monetary and credit policies. We will continue to do a good job in providing financial services to support the development and growth of the private economy, and promote the smooth financing channels of private enterprises such as credit, bonds, and equity. Coordinate the study of policies and measures to digest the stock of real estate and optimize the incremental housing, and promote the steady and healthy development of the real estate market.
Third, it is necessary to grasp the balance between interest rates and exchange rates. Implement a market-oriented adjustment mechanism for deposit interest rates, prevent high-interest solicitation of deposits, maintain the order of market competition, and strive to stabilize the cost of bank liabilities. Adhere to the bottom-line thinking, resolutely guard against the risk of exchange rate overshoot, prevent the formation of unilateral consensus expectations and self-reinforcement, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
Fourth, we will continue to deepen financial reform and open up to the outside world. Improve the legal system of the bond market and consolidate the legal foundation of corporate credit bonds. Promote the expansion and standardized development of over-the-counter bond business, and improve the efficiency and convenience of financial infrastructure services. We will steadily and steadily promote the internationalization of the renminbi, further expand the use of renminbi in cross-border trade and investment, deepen foreign currency cooperation, and develop the offshore renminbi market.
Fifth, actively and prudently prevent and resolve financial risks. Promote risk disposal and risk reform in key regions, key institutions and key areas in a steady and orderly manner, and complete the completion of existing risk disposal projects in a steady and orderly manner. Continue to do a good job in the pilot work of early correction of hard constraints. It is recommended to continue to improve the legal system for financial stability, and cooperate with relevant departments to continue to promote the legislative process of the Financial Stability Law.
Industry experts: improve the quality and efficiency of financial support
In recent years, with the transformation and upgrading of the mainland's economy and high-quality development, the relationship between the mainland's credit growth and economic growth has tended to weaken. The discussion of "why financial and economic data trends are inconsistent" has also attracted much attention in the industry.
The report believes that the slowdown in the growth of the huge monetary aggregate does not mean that the intensity of financial support for the real economy has decreased, but it is a reflection of the improvement of the quality and efficiency of financial support. For example, in 2023, the average growth rate of loans in a region will be 11.4%, and the average GDP growth rate will be 5%; In another region, the average growth rate of loans was only 3.3%, but the average GDP growth rate was also 4.8%. In some provinces, loans grew rapidly, but they did not effectively drive economic growth. There are also provinces that have supported faster economic development with lower credit growth, but the efficiency of capital use is improving.
According to the report, the mainland's total credit has slowed down from a high growth rate of more than double digits in the past to single digits, but this does not mean that financial support for the real economy has weakened. The main reason is that economic restructuring and transformation and upgrading are accelerating; When the scale of credit stock is relatively large, the marginal effect of continuing to increase credit supply decreases; Direct financing has a benign substitution effect.
Wang Qing, chief analyst of Oriental Jincheng, said that economic restructuring shows that economic growth is less dependent on credit; The marginal effect of increasing credit supply is decreasing, including when the loan supply exceeds the real and effective financing needs of the real economy, it will not only make inefficient enterprises occupy credit resources for a long time, it is difficult to clear and survive the fittest, and low-price vicious competition will drag down high-efficiency enterprises, but also easily cause some enterprises to use low-cost loan funds for purchasing financial management, saving time deposits, or relending to other enterprises with their own advantageous position, bringing about the problem of idling arbitrage of enterprise funds. Finally, direct financing methods such as bond financing and equity financing form a certain substitution for bank loans.
Wang Qing said that the report emphasized "soundness" when talking about the main ideas of monetary policy in the next stage, which means that the next monetary policy operation will continue to adhere to the rhythm of gradual adjustment; Secondly, the report also made it clear that it is necessary to "enhance the consistency of macroeconomic policy orientation", indicating that monetary policy will further strengthen coordination with fiscal policy and industrial policy.