After the big volatility in financial data in April, the market's expectations for a rate cut in May have risen. On May 15, the People's Bank of China's (PBOC) medium-term borrowing facility (MLF) operation was "equivalent parity", and the expectation of interest rate cut was temporarily disappointed.
According to the financial statistics and social financing scale (hereinafter referred to as "social finance") data released by the central bank in April, the Economic Observer found that new RMB loans in April were 730 billion yuan, an increase of 11.2 billion yuan year-on-year. The increase in social finance in April was -198.7 billion yuan, compared with 1.22 trillion yuan in the same period last year.
Affected by social financing and other factors, the growth rate of money supply declined. Narrow money (M1) fell 1.4% year-on-year in April, while broad money (M2) grew 7.2%, a record low. Ming Ming, chief economist of CITIC Securities, said that the decline in money supply is mainly due to the "squeezing of water" by the regulator on some non-compliant deposit products, and it is also related to the current more diversified wealth management methods, which cannot be interpreted as a decline in the ability of finance to support the real economy; On the contrary, the supervision of deposits will help revitalize funds and help finance better support the recovery and development of the real economy.
Some scholars also analyzed that in terms of boosting market confidence and expectations, it is necessary to speed up the adoption of more effective measures.
Some market investors believe that the MLF interest rate should be lowered to stimulate financing due to negative growth in social finance in April. Zhang Xu, chief analyst of fixed income at Everbright Securities, said that the decline in the year-on-year growth rate of social finance was to a certain extent dragged down by the "squeezing water" of financial data. Since much of the "water" that has been squeezed out is also precipitated or inefficiently occupied in the early stage, and has not formed a real support for the real economy, the decline in financial data caused by the "squeezing of water" does not mean that the strength of financial support entities has weakened, and there is no need to immediately use a powerful policy tool such as MLF interest rate cuts.
In April, social finance showed negative growth
According to central bank data, the cumulative increase in social financing in the first four months of 2024 was 12.73 trillion yuan, and the cumulative increase in social financing in the first quarter of 2024 was 12.93 trillion yuan. Therefore, the increase in social financing in April was -198.7 billion yuan.
The increment of social financing refers to the amount of funds that the real economy receives from the financial system in a certain period of time, including direct financing such as corporate bonds and government bonds, as well as indirect financing such as RMB loans and foreign currency loans.
From the perspective of social finance, government bonds, corporate bonds and undiscounted bank acceptance bills dragged down the April data. Net financing of government bonds in April increased by 98.4 billion yuan, 553.2 billion yuan less than that in April 2023.
Ming Ming believes that the scale of government bonds has declined because the issuance of national bonds and local bonds has been slow. Considering factors such as the decline in land transfer fees, the slow progress of special bond issuance, and the limited financial resources of local governments, the follow-up government bond financing will be accelerated, which is expected to give a significant boost to social finance.
In April, the new scale of corporate bond financing was 49.3 billion yuan, a year-on-year decrease of 244.7 billion yuan. Undiscounted acceptance bills decreased by 448.6 billion yuan, a year-on-year decrease of 314.1 billion yuan, mainly due to the impulse of bank bills and the decline in the willingness of enterprises to issue bills.
In terms of renminbi loan data (also known as "credit data"), it was basically unchanged from the same period last year. April was a small month for traditional credit, with new RMB loans of about 730 billion yuan in April 2024. However, from the perspective of credit structure, the phenomenon of bill impulse is obvious.
In April, loans to enterprises (institutions) increased by 860 billion yuan. Among them, short-term loans decreased by 410 billion yuan, medium and long-term loans increased by 410 billion yuan, and bill financing increased by 838.1 billion yuan.
Wen Bin, chief economist of China Minsheng Bank, said that the demand for corporate loans weakened seasonally in April, but the provision of long-term loans to the public remained stable, which is still an important force to support new credit. Under the constraints of demand, in order to stabilize the pace of credit delivery, some banks still have the need to fill in the scale of bills.
Residential loans (also known as "household loans") showed negative growth. Resident loans mainly include short-term loans such as consumer loans and business loans, and medium- and long-term loans such as housing mortgage loans. Resident loans decreased by 516.6 billion yuan in April, 275.5 billion yuan more than in April 2023. Among them, short-term loans and medium- and long-term loans to residents decreased by 351.8 billion yuan and 166.6 billion yuan respectively.
Wang Yifeng, chief analyst of the financial industry at Everbright Securities, believes that with the increase in the supply of government bonds, the growth rate of social finance is expected to gradually rise. In April, the growth rate of social finance hit a year-to-date low of 8.3%, mainly dragged down by factors such as the backward release of loans for some reserve projects, the lag in the issuance of government bonds, the decline in existing bills, and the flattening of equity and bond financing.
The growth rate of the money supply has declined
The slowdown in financing demand has led to a deceleration in the money supply. At the end of April, the balance of M2 was 301.19 trillion yuan, a year-on-year increase of 7.2%. The balance of M1 was 66.01 trillion yuan, down 1.4% year-on-year. M1 turned negative year-on-year, and M2 fell to a record low year-on-year.
At present, the currency of the mainland is divided into three levels: M0, M1 and M2. M0, or what we often call "cash", is the most active and the most liquid; M1 is M0 plus a unit demand deposit with slightly weaker liquidity; M2 refers to M1 plus less liquid unit time deposits, resident deposits, etc. Therefore, M1 is referred to as the narrow money supply; M2 is the broad money supply.
Ming Ming said that the obvious decline in the growth rate of money supply is mainly due to the fact that since April, many deposit funds have been transferred to asset management products such as bank wealth management under the background of seasonal factors and strict supervision of manual interest supplements. Judging from the changes in deposits of various departments, in April, residents' deposits decreased by about 650 billion yuan year-on-year, corporate deposits decreased by about 1.7 trillion yuan year-on-year, and government deposits decreased by about 400 billion yuan year-on-year. The decrease in deposits of residents and enterprises confirms the phenomenon of "deposit moving", and the year-on-year decrease in fiscal deposits is mainly due to the slow process of government bond issuance, considering that government bond financing decreased by 550 billion yuan compared with the same period last year, which reflects the current marginal slowdown in the pace of fiscal expenditure.
At the end of April, the "scissors gap" between M2 and M1 growth rates widened. Wen Bin believes that the growth rate of M2 has slowed down, but the quality and efficiency of the financial system to serve the real economy have been further improved. The slowdown in the growth rate of the money supply is affected by a combination of factors. First, since the beginning of the year, the bond market has been bullish to boost the yield of asset management products such as wealth management, and bank deposits have been diverted to wealth management; Second, the regulatory authorities have increased the regulation of idling arbitrage of funds and manual interest replenishment by banks, so as to squeeze out some of the inflated deposits and loans; Third, the accounting of the added value of the financial industry has been optimized, and the motivation of individual local governments to increase the added value of finance through the expansion of deposits and loans has been significantly weakened. In the coming months, the growth rate of money supply will stabilize with the gradual improvement of the financing demand of the real economy, the acceleration of government financing, and the gradual return of the bond market to the logic of fundamentals.
According to the financial data in April, the year-on-year growth rate of new resident loans, new social financing, and M1 was "negative". Wang Yifeng analyzed, first, the lack of effective demand is still the core problem, and some influencing factors exert influence on the "credit month", the former is the "source", the latter is the "flow"; Second, the change in the value-added accounting method of the financial industry has promoted the slowdown of the demand of all stakeholders for scale expansion; Third, the policy guidance strengthens the "revitalization of the stock of financial resources" to prevent "capital precipitation and idling", and the financial data readings in April do have the element of "squeezing water"; Fourth, the substantive impact of the suspension of "manual interest supplements" may be the beginning rather than the end; Fifth, the contradiction between deposits and loans, money and credit, and the scissors difference in readings is likely to continue.
May MLF "Equal Amount Parity" sequel
On May 15, 2024, the People's Bank of China (PBoC) launched a RMB2 billion open market reverse repurchase operation and a RMB125 billion MLF operation. On the same day, a total of 2 billion yuan of reverse repurchase and 125 billion yuan of MLF expired, realizing full hedging of liquidity. In terms of prices, the MLF operating rate remained unchanged at 2.5%, and the 7-day reverse repo operating rate remained unchanged at 1.8%.
The volume and price of MLF were flat, and the volume reduction operation was ended for the first time since March. Ming Ming believes that at the price level, the MLF and reverse repo operations have maintained the previous interest rates unchanged, and the market's expectations for the landing of interest rate cuts in May have been disappointed based on the weak social finance credit data in April. In terms of quantity, the MLF continued to be 125 billion yuan, and the scale of maturity on the same day was also 125 billion yuan, which was the first time since March this year to end the liquidity reduction operation.
Since May, the biggest concern about liquidity in the market has been the concentrated supply shock of 1 trillion yuan of ultra-long-term special treasury bonds, and it is believed that the central bank may hedge it by cutting the reserve requirement. According to Wen Bin's analysis, according to the Ministry of Finance's latest arrangements for the issuance of general treasury bonds and ultra-long-term special treasury bonds on May 13, the Ministry of Finance plans to issue three types of special treasury bonds of 20 years, 30 years and 50 years this year, which will be issued 7 times, 12 times and 3 times respectively, scattered from May to November. The smooth issuance and lengthening of the pace of the special treasury bonds have weakened the concentrated impact on liquidity, and correspondingly, the need for the central bank to cooperate with the current RRR cut has also decreased.
Moreover, if the MLF interest rate remains unchanged in May, there is a high probability that the LPR (loan prime rate) will remain "on hold" this month.
Ming Ming believes that taking into account both domestic and foreign policy conditions, MLF may cut interest rates or wait for a better time. As of the first quarter of this year, the weighted average interest rate of general loans has fallen to a record low of 4.27%, which makes commercial banks face higher pressure on interest margins, and the demand for cost reduction in the financial system is still high. The financial data of credit cooperatives in April was in good condition, and the recovery of physical financing demand also required further efforts to reduce costs. In the first quarter of the monetary policy report, the expression "pay close attention to the changes in the monetary policies of major overseas central banks" was preempted, reflecting the increase in the central bank's attention to overseas monetary policy operations. 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.
For the future policy space, Wen Bin expects that 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 and change of conditions, there may still be a possibility of landing within the year.