Original title: The central bank’s move to maintain stability at the end of the month is expected to lower its RRR again in the fourth quarter
As the liquidity gap increased during the year, it is expected that the central bank will continue to carry out hedging operations to maintain a stable funding interest rate center.
On August 26, in order to maintain stable liquidity at the end of the month, the central bank launched a 50 billion yuan reverse repurchase operation by way of interest rate bidding. The interest rate was 2.20%, which was the same as the previous period. It is worth noting that this is the central bank’s 50 billion reverse repurchase operation for two consecutive days, and it is an increase operation based on the 10 billion routine.
The analysis believes that at the end of August, the fund interest rate rose and the volatility of the fund side increased. Increasing the scale of reverse repurchase operations can maintain the stable operation of the fund side, which shows that the monetary policy is more active in maintaining the fund side. In addition, due to the increased liquidity gap during the year, it is expected that the central bank will continue to carry out hedging operations to maintain a stable funding interest rate center.
Incremental operation reverse repurchase for two consecutive days
The open market operating interest rate reflects the central bank’s policy interest rate signal. Since March 2021, the central bank has basically formed the practice of carrying out 7-day reverse repurchase operations every working day, and each operation volume is 10 billion, and the operating interest rate remains unchanged at 2.2%. The central bank stated that it releases short-term policy interest rate signals through daily 7-day reverse repurchase operations, and guides money market interest rates to revolve around the central bank’s open market operating interest rates. Interest rate volatility has further declined, market expectations are more stable, and open market operating interest rates are used as short-term interest rates. The role of the center has been strengthened.
China Everbright Bank’s macro analyst Zhou Maohua told the 21st Century Business Herald: “The main reason is that market interest rates have risen recently, indicating that the market’s short-term liquidity has tightened slightly. It also appeared on July 28 and July 30. The central bank will use a variety of policy tools to flexibly respond to short-term funding interference factors and maintain market liquidity in a reasonably sufficient pattern.”
The central bank pointed out that the number of open market operations will be flexibly adjusted according to various temporary factors such as finance, cash, and market demand, and its changes do not fully reflect the trend of market interest rates, nor do they represent changes in the central bank’s policy interest rates. Secondly, when observing market interest rates, focus on the weighted average interest rate level of the main market interest rate indicator (DR007) and the average value of DR007 over a period of time, rather than the transaction interest rate of individual institutions or the time point value disturbed by short-term factors.
Wind data shows that on August 25, the weighted average price of DR007 was 2.3265%, an increase of 10BP over the previous day, which is the fifth consecutive day of increase. Among them, the weighted average price of DR007 from August 18th to 24th was 2.0109%, 2.0570%, 2.0857%, 2.1472%, and 2.2205% respectively. In addition, the average interest rates of DR007 in the past 5, 10, 20, and 60 days were 2.1943%, 2.2022%, 2.1731%, and 2.1913%, respectively. It is not difficult to find that the DR007 interest rate has basically remained close to 2.2%, which is equivalent to the current 7-day reverse repo operating interest rate of 2.20%.
Zhou Maohua pointed out that stabilizing market interest rates in a reasonable and moderate range will help reduce the cost of interbank debt and clear policy transmission; prudent monetary policy will remain flexible and appropriate. According to changes in the domestic and international economic environment, the central bank will use multiple tools to ensure reasonable and sufficient liquidity , The overall monetary environment is slightly looser than in the first half of the year.
In the fourth quarter, the RRR will be lowered again to replace MLF
Since March 2021, not only has the interest rate of the 7-day reverse repurchase operation maintained at 2.2%, the MLF winning bid rate has remained unchanged at 2.95%. At the same time, LPR quotations anchored by MLF have been “holding on hold” for 16 consecutive months. Among them, the 1-year LPR is 3.85%, and the 5-year or more LPR is 4.65%.
Based on the use of monetary policy tools such as the Mid-term Lending Facility (MLF) to release medium and long-term liquidity, the central bank continuously carries out daily open market operations to further improve the flexibility, accuracy and effectiveness of operations without liquidity tension. Do not invest too much liquidity to cause siltation of funds, and maintain the liquidity of the banking system not to be loose or tight, and to be reasonably adequate. Through cross-cycle arrangements to reduce liquidity fluctuations, stabilize market expectations, reduce preventive capital requirements, and improve the efficiency of the central bank’s liquidity operations.
Mingming’s bond research team analyzed that there is a high probability that local bond issuance will continue to accelerate during the year, and the subsequent MLF maturity scale is large, it is expected that the liquidity gap will expand during the year, and the disturbance to the liquidity environment will increase. Under the background of the low over-reserve rate, the fund interest rate may fluctuate more. We believe that monetary policy will give full play to the expected guidance, hedge the liquidity gap, and maintain liquidity stability. It is expected that the scale of subsequent reverse repurchase operations will not increase significantly. In the fourth quarter, the RRR will be reduced again to replace MLF, and carbon emission reduction support tools will also be expected. Landing. As far as the liquidity environment is concerned, the central bank is expected to maintain the stability of the funding rate center.
Wang Qing, chief macro analyst at Oriental Jincheng, believes that the central bank may implement a full RRR cut again in the fourth quarter. The main reasons include: First, as the export momentum weakens, the urgency to boost domestic demand will increase accordingly. This means that macroeconomic policies will be further fine-tuned in the direction of stable growth, including supporting manufacturing investment, accelerating the issuance of special bonds, leveraging infrastructure investment, and promoting consumer consumption through the expansion of consumer loans. Secondly, considering that the “scissors gap” between PPI and CPI will remain for a period of time in the second half of the year, in order to alleviate the cost pressures faced by downstream small and micro enterprises, it is necessary to support the policy. It is predicted from this that the central bank may again implement a 0.5 percentage point full-scale RRR cut in the fourth quarter.
(Author: Bian Wanli Editor: Ma Chunyuan)
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