Original title: The central bank made the same sequel MLF interest rate unchanged for the first time since the third quarter, breaking market “interest rate cut” expectations
Our reporter Liu Qi
On September 15, the Mid-term Lending Facility (MLF) operation of the People’s Bank of China (hereinafter referred to as the “central bank”) arrived as scheduled. The central bank issued an announcement stating that in order to maintain reasonable and sufficient liquidity in the banking system, 600 billion MLF operations were carried out on the same day (including the continuation of the MLF maturity on September 15), and the operating interest rate remained unchanged at 2.95%.
Judging from the operation and operating interest rate of this MLF, it is in line with the forecast in the report previously published by the reporter of the Securities Daily, “Experts predict that the operating interest rate of MLF will be equal or reduced in September will remain unchanged.” On September 15th, 600 billion yuan of MLF expired in the open market, so this MLF operation was a continuation of the same amount.
Analysts interviewed by the “Securities Daily” reporter for the central bank’s equal parity renewal of the MLF this month believe that this shows that the policy supports the current moderate long-term liquidity in the banking system and will help further reduce the financing costs of the real economy. At the same time, the unchanged MLF operating interest rate also indicates that the loan market quote interest rate (LPR) on the 20th of this month will likely remain unchanged.
The “tight credit” process is coming to an end
Looking back at the central bank’s MLF operations in recent months, June was a sequel to the same amount, and July and August were both sequels to a reduced amount. In other words, this month’s MLF operation is the first time since the third quarter that the central bank will continue to make an equal amount of MLF. Specifically, the operation volume of MLF in September was the same as that in August, both at 600 billion yuan. However, the maturity of the MLF in August was 700 billion yuan, the central bank slightly reduced the operation volume by 100 billion yuan, and this month it was fully hedged.
In response to this, Wang Qing, chief macro analyst at Oriental Jincheng, said in an interview with a reporter from the Securities Daily that the central bank’s implementation of a continuation of the same amount this month indicates that the policy supports moderately easing bank liquidity in the medium and long term, which will help drive credit and credit in the short term. Major financial data such as the growth rate of social financing bottomed out and rebounded.
“More importantly, this month’s high-volume MLF sequel will help to further reduce the financing costs of the real economy and increase financial support for stable growth.” Wang Qing said, the National Standing Committee proposed on July 7 this year. Since the RRR cut, interest rates in the mid-market have fallen sharply. Among them, the monthly average of the 1-year commercial bank (AAA) interbank certificate of deposit yield to maturity in August fell to 2.66%, which was 9 basis points lower than that in July, and was already below the mid-range policy rate (MLF rate); entering September , The “upside down” range remained basically stable. The sharp decline in the yield to maturity of interbank certificates of deposit will directly contribute to the decline of banks’ marginal cost of funds; coupled with the recent supervisory authorities’ “urging banks to transmit policy dividends to the real economy”, it is expected that the downward trend in corporate loan interest rates since the second quarter will continue. As a result, bank loans to the real economy will increase in volume and prices will decrease in the coming period, and financial support for stable growth will increase.
Wang Qing believes that despite the continued weakness of financial data in August, it mainly reflects the time lag effect. In the context of the central bank’s RRR cut in July, the monetary and credit situation analysis symposium held in August, and the recent addition of 300 billion yuan of small reloans to support small and micro enterprises, it can be said that the signal of “wide credit” has been relatively clear. Superimposed on this high-volume MLF sequel, it is expected that the “tight credit” process since the beginning of the year is coming to an end. The financial data in August basically touched the bottom area of this round of “tight credit” process, and it is expected to stabilize in September. Credit and social financing in the fourth quarter The growth rate of M2 and M2 will enter a slight recovery process.
Operating interest rates are in line with market expectations
According to the central bank’s announcement, the operating interest rate for this 600 billion MLF is 2.95%. Looking back at the adjustment of the MLF operating interest rate, it is still in April 2020. That month, the central bank launched an MLF of 100 billion yuan, and the operating interest rate was lowered from 3.15% to 2.95%, and it has been maintained since then.
Chen Li, chief economist and director of the Institute of Chuancai Securities, told the “Securities Daily” reporter that the MLF operating interest rate is my country’s medium-term policy interest rate and the center of my country’s monetary policy orientation. The central bank has repeatedly emphasized that it is necessary to implement a prudent monetary policy. The MLF operating interest rate is the policy interest rate that guides the money market interest rate. The MLF continued to maintain the 2.95% level this month, showing that the keynote of monetary policy “stable” has not changed. At the same time, the MLF operating interest rate has been maintained at the same level since April last year. The policy signals released are of greater significance, reflecting that the monetary policy still focuses on maintaining a balance between stabilizing growth, preventing risks, and controlling inflation.
In Wang Qing’s view, the MLF operating interest rate has not been adjusted this month, which further broke some of the “interest rate cut” expectations in the market. Looking at the current point in time, the medium-term policy interest rate represented by the MLF operating interest rate is expected to remain unchanged, and it is unlikely that there will be a “double cut (reduced reserve rate + policy rate cut)” in the future.
Since the LPR quotation is linked to the MLF interest rate, the market is concerned about the central bank’s MLF operating interest rate while also including the pre-judgment of the LPR quotation. Therefore, the MLF operating interest rate remained unchanged in September, and analysts generally expect the LPR to remain unchanged this month. As of August, the LPR has remained unchanged for 16 consecutive months. The 1-year LPR was 3.85%, and the 5-year or more LPR was 4.65%.
Regarding whether there is still the possibility of adjustment of LPR during the year, Wang Qing analyzed that after the July RRR cut decision was issued, the mid-market interest rates including the March Shibor (Shanghai Interbank Offered Rate) and the interbank deposit interest rate have fallen. Larger, the marginal cost of funds of banks has decreased. In addition, the RRR cut itself can reduce the capital cost of financial institutions by about 13 billion yuan per year. In early June, the supervisory authority has relieved the upward pressure on bank deposit costs by optimizing the supervision of deposit interest rates. Judging from this, the momentum for banks to lower their 1-year LPR quotations is accumulating. It can be seen that the latest one-year LPR interest rate swap (IRS) on August 30 was 3.88%, which was 8 basis points lower than before the RRR cut in July. Expectations of the downgrade are increasing.