The central bank’s sequel to the largest single-day launch of the 1 trillion MLF on the market, expectations for the one-year LPR reduction are increasing

Original title: The central bank’s sequel 1 trillion MLF hits the largest single-day market launch. Expectations for the one-year LPR reduction are increasing

On November 15, the People’s Bank of China (hereinafter referred to as the “central bank”) issued an announcement that in order to maintain a reasonable and sufficient liquidity in the banking system, it carried out a medium-term lending facility (MLF) operation of RMB 100 billion on the same day (including on November 16 and November 30). Two renewals of MLF due date) and 10 billion yuan reverse repurchase operations have fully met the needs of financial institutions. From the perspective of operating interest rates, MLF remains unchanged at 2.95%, and the 7-day reverse repurchase rate also remains unchanged at 2.2%.

As the huge amount of MLF of 800 billion yuan and 200 billion yuan accumulated on November 16 and November 30 respectively expired, the market is extremely concerned about the central bank’s MLF operation. Earlier, many experts said in an interview with a reporter from the Securities Daily that the central bank will most likely carry out a one-off equal hedging of two expired MLFs. Therefore, the central bank’s 1,000 billion yuan MLF operation is also in line with expectations. At the same time, the 100 billion yuan investment has also set the largest single-day investment scale since the establishment of MLF. In addition, the November MLF is also the sequel to the central bank for the third consecutive month.

The Government Debt Research and Evaluation Center of the Ministry of Finance recently released the issuance of local government bonds in October 2021. From January to October, local governments have organized the issuance of 3662.4 billion yuan in new local government bonds, including 755.2 billion yuan in general bonds and special bonds. 27578 billion yuan and a new special bond carryover quota of 149.4 billion yuan in 2020. According to the requirements of the Ministry of Finance to “try to complete the issuance of new special bonds before the end of November”, if the new special debt limit of this year’s budget is 3.650 billion yuan, 892.2 billion yuan of new special bonds will need to be issued at the end of November.

“MLF’s huge and equal sequel will help commercial banks prepare for the peak issuance of new local government special bonds.” Wang Qing, chief macro analyst at Oriental Jincheng, said in an interview with a reporter from “Securities Daily” that after the central bank lowered its RRR in July, The medium-term liquidity of the banking system is biased towards ease. The mid-market interest rate represented by the 1-year commercial bank (AAA) interbank certificate of deposit maturity rate is about 20 basis points lower than the medium-term policy interest rate (MLF interest rate). In this situation, in November, the central bank still chose to renew the MLF with a huge amount, which will help commercial banks to cope with the upcoming peak issuance of new local government special bonds and prevent market interest rates from rising more than expected. This aspect reflects the coordination between monetary policy and fiscal policy, and also helps to create a more favorable monetary and financial environment for stable growth in the fourth quarter.

Under the large-scale MLF placement, the scale of reverse repurchase operations has converged. In November, the central bank rarely carried out large-scale reverse repurchase at the beginning of the month. After the central bank launched 10 billion yuan reverse repurchase on November 1 and November 2, the increase was increased to 500 yuan on November 3 and November 4. From November 5th to November 12th, the amount will be further increased to 100 billion yuan per day. On November 15th, while the central bank launched a 1,000 billion MLF, the reverse repurchase volume was reduced to 10 billion. This also fully demonstrates that the central bank strives to maintain reasonable and sufficient liquidity and insists on not engaging in “flood flooding.”

From the current point of view, the overall market liquidity is abundant. According to data from the National Interbank Funding Center, on November 15, the overnight Shibor (Shanghai Interbank Offered Rate) was 1.787%, which was lower than its 5-day average (1.8988%) and 10-day average (1.929%). As of 15:30 on November 15, the weighted average of DR007 was 2.0711%, which was lower than the 7-day reverse repurchase rate.

Wang Qing believes that in the later period, facing the situation of increased liquidity volatility and rising demand for stable growth before the end of the year, if purely from the perspective of liquidity management, the central bank will gradually increase the scale of reverse repurchase operations before the end of the year, and increase the amount appropriately. The sequel to the MLF can deal with all kinds of liquidity disturbances; if we take into account the liquidity management, we should focus on releasing the signal of moderate and stable growth, promote the rapid recovery of credit and social financing growth, and guide the real economy’s financing costs to decline, before the end of the year The central bank may also implement a RRR cut again.

Since the operating interest rate of the MLF remains unchanged, it also indicates that the basis of the LPR quotation has not changed. “Considering the recent changes in the bank’s marginal capital cost and credit market trends, it is possible that the LPR quotations in November will continue to remain unchanged.” Wang Qing said, considering that the one-year LPR quotation reduction momentum is accumulating after the central bank’s RRR cut in July, If the central bank implements another RRR cut before the end of the year, it is not ruled out that while the MLF interest rate remains unchanged, the 1-year LPR quotation may be individually lowered. On November 12, the latest one-year LPR interest rate swap (IRS) was 3.8749%, which was about 9 basis points lower than before the RRR cut in July, and was approaching the current value level (3.85%). Expectations for LPR downgrades are increasing.Return to Sohu to see more