The central bank released an important signal: the monetary growth rate may be brewing new changes

Xiaobai reads finance and economics

2024-05-17 15:45Published in Guangdong

New changes are brewing in the growth rate of the currency, and many people have not noticed!

1. The latest data released by the central bank showed that at the end of April this year, the balance of broad money (M2) was 301.19 trillion yuan, a year-on-year increase of 7.2%.

In my impression, the M2 growth rate of 7.2% should be a record low. In the past, the growth rate of M2 continued to undergo new changes, and after the international financial crisis in 08 to May 2010, the growth rate of M2 was basically more than 20%. From May 2010 to March 2017, it was basically more than 10%. From March 2017 to February 2020, it was basically above 8%. After the pandemic, it rebounded to more than 10%.

Today's M2 growth rate of 7.2% is historically rare and may become the new normal in the future.

2. The central bank's report on the implementation of China's monetary policy in the first quarter of 2024 mentions that direct financing is accelerating its development, and in the future, with the further expansion of bonds such as over-the-counter bonds and corporate bonds, these investment and financing activities will not be realized through traditional bank deposit and loan business, and the deposit and loan and money supply will also decline.

This means that we may need to adapt to lower M2 growth in the future.

Broad money (M2) is the sum of household deposits, corporate deposits and cash in society, which is equivalent to the total amount of money and money in the market. In the past, we often talked about the growth rate of money printing, mainly referring to the growth rate of M2.

Under the circumstance that land, labor, and other factors of production tend to be saturated, the mainland's steady growth and employment need the support of monetary policy. The main thing is that the currency should grow moderately and the price of funds should be cheaper.

In the case of a possible low growth in the money supply (M2), it is more likely to guide interest rates down to make money cheaper.

The recent Politburo meeting mentioned that it is necessary to flexibly use policy tools such as interest rates and reserve requirement ratios to increase support for the real economy and reduce comprehensive social financing costs.

According to incomplete statistics from the Financial Associated Press, more than 20 banks have successively removed high-interest deposits such as smart notice deposits during the year, and about 11 banks have followed up since May alone.

The article published by the Shanghai Securities News mentioned that a new round of deposit rate cuts is coming.

After the deposit interest rate falls, the yield of other fixed-income wealth management products will also fall. In the future, there is no longer a low-risk and high-yield financial management.

However, in the case of falling interest rates, it is a big opportunity for ultra-long-term government bonds. First, the lower the interest rate, the more the price of government bonds will rise, and long-term government bonds are ultra-long-term and more sensitive to the decline in interest rates. Second, long-term treasury bonds mainly rely on the bid-ask spread to obtain income.

At present, the mainland's ultra-long-term treasury bonds are mainly 30-year, and ordinary people can buy 30-year treasury bonds, but they have to go to the bank counter to queue up to buy, which is more inconvenient, and it is more convenient for investors to lay out ETFs.

Pengyang China Bond - 30 Year Treasury Bond ETF (511090) is the first and largest ultra-long-term treasury bond ETF in the market. This Sunday, the 30-year Treasury bond ETF will be one year old. The 30-year Treasury ETF (511090) has risen nearly 7% so far this year and is expected to continue to rise as interest rates fall.

As new changes are brewing in the growth rate of the mainland's currency, the issuance of long-term treasury bonds is also increasing. On May 13, the Ministry of Finance announced the relevant arrangements for the issuance of general treasury bonds and ultra-long-term special treasury bonds in 2024, and the 1 trillion yuan ultra-long-term special treasury bonds planned to be issued this year are divided into three varieties: 20 years, 30 years and 50 years, and the first batch of special treasury bonds with a maturity of 30 years will be issued today.

In order to support the issuance of ultra-long-term special treasury bonds and reduce the cost of fiscal issuance, it is very likely that interest rates will be cut in the second half of the year, and a new round of deposit rate cuts may be the first to come. 

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