The new medium-term lending facility (MLF) is on schedule. According to the official website of the People's Bank of China, in order to maintain reasonable and sufficient liquidity in the banking system, on May 15, 2024, the People's Bank of China launched a reverse repurchase operation of 2 billion yuan in the open market and an MLF operation of 125 billion yuan, with the winning interest rates of 1.8% and 2.5% respectively.
The MLF operating interest rate is in line with the previous one, which is in line with market expectations as a whole. In the opinion of analysts, the monetary policy will adhere to the general tone of steady easing, and it may be difficult to realize the RRR and interest rate cuts in the short term, but with the accumulation of conditions, there is a possibility of landing in the fourth quarter.
The same amount of continuation will stabilize the capital side
After two consecutive months of scaling down MLF, the People's Bank of China (PBoC) restarted the same amount of sequel this month. According to Wind data, 2 billion yuan of reverse repurchase and 125 billion yuan of MLF expired on May 15, and the overall zero investment and zero withdrawal were achieved on the same day.
Image source: People's Bank of China
Judging from the scale of MLF sequels, MLF investment funds continued to fall in May. In April 2024, the People's Bank of China (PBoC) launched a one-year MLF operation of 100 billion yuan, compared with 387 billion yuan in March. In addition to the scale of long-term funds invested through MLF, the reverse repurchase operation in the open market has also been maintained at the level of 2 billion yuan and 10 billion yuan since March.
On the other hand, on May 13, the official website of the Ministry of Finance announced the notice on the relevant arrangements for the issuance of general treasury bonds and ultra-long-term special treasury bonds in 2024, among which the varieties of ultra-long-term special treasury bonds include 20 years, 30 years, 50 years and other categories, which will be issued on May 17 at the earliest. Although the Ministry of Finance has not yet released information on the issuance scale and interest rate, the launch of the issuance of 1 trillion yuan of ultra-long-term special treasury bonds is also seen as an important factor disrupting liquidity in May.
In response to the MLF operation this month, Wen Bin, chief economist of China Minsheng Bank, pointed out that since the beginning of the year, the monetary policy has been front-loaded, and in order to strengthen coordination with fiscal policy and stabilize economic growth, the People's Bank of China released long-term liquidity of about 1 trillion yuan to the market through RRR cuts in February. However, due to factors such as the slow pace of government bond issuance and the smooth pace of credit, the capital situation remained stable and loose, and the People's Bank of China had no intention of injecting too much funds.
Wen Bin believes that the smooth issuance and lengthening of the rhythm of the special treasury bonds have weakened the concentrated impact on liquidity. Affected by the "May Day" holiday, the tax declaration deadline this month has been extended to May 22, and the disturbance to the capital side is greater in the days before and after tax payment. Therefore, this month, MLF ended its shrinkage, and stabilized the capital side, smoothed interest rate fluctuations, and strengthened policy coordination through the same amount of sequel.
Ming Ming, chief economist of CITIC Securities, also pointed out that the issuance scale of 1 trillion yuan of ultra-long-term special treasury bonds is evenly distributed to the decentralized issuance from May to December, and the supply pressure in a single month is expected to be relatively controllable. In the first quarter of the report on the supply of liquidity, it is mentioned that "smooth the transmission mechanism of monetary policy and avoid the idling of capital precipitation", while maintaining reasonable and abundant liquidity, avoiding capital precipitation and idling is still one of the main objectives of monetary policy.
"Since April, the funding rate has basically stabilized around the policy interest rate, and the interbank certificate of deposit interest rate has also remained relatively low during the year. Ming Ming added.
Interest rates will remain stable in the short term
In addition to "quantity level", there is also "price stability". Compared with the slight change in the scale of operation, the MLF operating rate remained unchanged in May, which was also in line with market expectations.
The most recent cut in the MLF rate occurred in August 2023, when the People's Bank of China (PBoC) cut the MLF and reverse repo rates by 15 basis points and 10 basis points, respectively. Since August 2023, the MLF and reverse repo rates have been maintained at 2.5% and 1.8%.
Recently, the overall market capital is in a neutral and loose state, and most of the short-end interest rates are in a downward state. On May 15, data from the China Foreign Exchange Trade System showed that the overnight Shibor was at 1.7270%, down 4.2 basis points, the 7-day Shibor was at 1.8080%, down 2.9 basis points, and the 14-day Shibor was at 1.8480%, down 2.3 basis points.
Image source: China Foreign Exchange Trade System
According to the People's Bank of China, the weighted average interest rate of new loans issued in March was 3.99%, down 35 basis points year-on-year. Among them, the weighted average interest rate of corporate loans was 3.73%, down 22 basis points year-on-year; The weighted average interest rate of personal housing loans was 3.69%, a sharp decrease of 45 basis points year-on-year.
At the same time, the yield on the asset side of banks continued to be under pressure, while the overall control of debt costs was still not ideal, which made bank interest margins continue to be under pressure in the first quarter. In the first quarter of 2024, the weighted average net interest margin of major listed banks was 1.57%, narrowing by 13 basis points year-on-year.
"Under the consideration of internal and external factors, the MLF interest rate remained unchanged in May." Wen Bin said. Wen Bin pointed out that from the perspective of the domestic situation, the domestic economic growth rate will rise to 5.3% in the first quarter of 2024, and a number of economic indicators will stabilize and improve, and the urgency of interest rate cuts in the short term is not high; From the perspective of the foreign situation, the U.S. dollar index continues to run at a high level, and it is still necessary to pay close attention to overseas economic and policy trends, and choose to start the domestic monetary policy adjustment in a timely manner. Under the consideration of "focusing on the internal and external balance", it is better to maintain the stability of the policy interest rate in the short term.
Clearly and bluntly, taking into account domestic and foreign policy conditions, MLF may be waiting for a better time to cut interest rates. As of the first quarter of 2024, the weighted average interest rate on general loans has fallen to a record low of 4.27%, which makes commercial banks face high pressure on interest margins, and the demand for cost reduction in the financial system is still high. Considering that there is still some uncertainty about the timing of interest rate cuts by central banks in overseas developed economies such as the US Federal Reserve, the timing of the current MLF rate cut may not be appropriate, and the deposit rate cut may be more feasible.
On the other hand, based on the "anchoring effect" of the MLF interest rate on the loan prime rate (LPR), a number of interviewed analysts said that the LPR is likely to remain "on hold" this month if the MLF interest rate remains unchanged in May.
The window for RRR and interest rate cuts still needs to be moved back
In view of the trend of monetary policy in the next stage, the People's Bank of China previously released the first quarter of 2024 China's monetary policy implementation report, pointing out that a prudent monetary policy should be flexible, moderate, precise and effective. We should rationally grasp the relationship between the two largest financing markets, bonds and credit, guide the rational growth and balanced distribution of credit, maintain reasonable and abundant liquidity, and keep the scale of social financing and money supply in line with the expected targets of economic growth and price levels.
At the same time, maintaining price stability and promoting a moderate recovery in prices should be regarded as an important consideration in grasping monetary policy, and policy coordination and cooperation should be strengthened to keep prices at a reasonable level. We will continue to deepen the market-oriented reform of interest rates, give full play to the role of the reform of the loan market prime interest rate and the market-oriented adjustment mechanism of the deposit interest rate, and promote the steady and moderate reduction of corporate financing and household credit costs.
Based on the current market performance and the current monetary policy, it is clearly pointed out that the expectation of easy money is not ending, and the long-term interest rate may remain volatile. For the bond market, although the disappointment of interest rate cut expectations has a marginal impact on market sentiment, the People's Bank of China's first-quarter monetary policy report is still clear on the policy orientation of monetary policy stability and looseness, and the market has strong expectations for the People's Bank of China to take measures such as RRR cuts and bond purchases in the secondary market in the subsequent stage of accelerating the supply of government bonds.
It is expected that short-term interest rates will remain volatile and strong in the context of the implementation of the special treasury bond supply plan and the phased exhaustion of the bond market.
Wen Bin pointed out that on the whole, in order to promote a moderate recovery in prices and increase support for the real economy, the importance of aggregate tools is still there, and monetary policy will adhere to the general tone of steady easing. However, in order to stabilize the exchange rate and prevent funds from idling arbitrage, it may be difficult to realize the RRR and interest rate cuts in the short term, but with the accumulation of conditions, there is a possibility of landing in the fourth quarter.
Specifically, in terms of RRR cuts, Wen Bin believes that in the short term, the People's Bank of China will stabilize the fluctuation of funds more through MLF sequelization and reverse repo net investment. However, judging from the estimated net financing amount of government bonds, the maturity of government bonds in November and December 2024 is low, and the liquidity pressure is relatively large, and considering that the maturity of MLF in the next two months is also the highest, the PBOC may implement RRR cuts at that time to protect liquidity and ease the pressure on the PBOC to continue MLF.
In terms of interest rate cuts, Wen Bin said that the Fed's expectations for interest rate cuts have increased in the future, and the pressure to stabilize the exchange rate has been relatively reduced compared with the previous period; After the suspension of manual interest supplementation, there is a strong certainty that the cost of deposits will fall during the year. In this context, if the recovery of prices and the recovery of endogenous financing demand are still not optimistic, it is necessary to further reduce the actual financing cost, thereby increasing the probability of reducing the policy rate.
Beijing Business Daily reporter Liao Meng