The central bank cut interest rates!
In order to maintain reasonable and abundant liquidity in the banking system, the People's Bank of China launched a 7-day reverse repurchase operation of 2 billion yuan by means of interest rate bidding, with a winning interest rate of 1.9% and a previous winning interest rate of 2.0%.
This is the first time since August 15, 2022 that the central bank has adjusted the 7-day reverse repurchase rate to achieve a "rate cut".
Considering that 2 billion yuan of reverse repurchase expired on that day, the open market realized zero return and zero investment.
Why operate reverse repurchase "cut interest rates"? Pang Ming, chief economist and director of research at
Jones Lang LaSalle in Greater China, told China News Agency that today's 2 billion yuan reverse repurchase operation fully hedges today's maturity, indicating that market liquidity remains reasonable and abundant, supply and demand are balanced, and there is no need for large-scale injection to maintain a stable capital level.
"This can be mutually corroborated with the recent steady decline in the overnight repo rate and the seven-day repo rate, and also shows that according to the changes in the central bank's liquidity supply and demand and market interest rates, flexible, accurate and timely regulation and control should be implemented to maintain a reasonable and abundant state of market liquidity and maintain the smooth operation of money market interest rates." Pang Ming said. Considering the
precise and effective implementation of sound monetary policy, Pang Ming said that on that day, the central bank lowered the winning rate of reverse repurchase and released more policy signals to stabilize market expectations, strengthen counter-cyclical adjustment, promote financial I nstitutions to continue to benefit the real economy on the asset side, and promote the comprehensive financing cost of enterprises and the cost of personal consumer credit. To create a tight, appropriate, stable and neutral monetary and financial environment for economic recovery and steady and healthy development. At the same time, we should make precise and effective efforts between macro-control policies, stabilize the foundation of economic recovery, boost confidence in development, stimulate the vitality of market players, and promote the sustained recovery of economic operation. Wang Qing, chief Macro Analyst
of Dongfang Jincheng, believes that this policy interest rate cut, combined with the recent cut in bank deposit rates, will effectively drive down the real lending rates of enterprises and residents, thereby stimulating credit demand and accelerating consumption and investment. "More importantly, this policy interest rate cut has released a clear signal of steady growth, which will effectively boost consumer and investment confidence and promote the real estate industry to achieve a soft landing as soon as possible." Yi Gang, governor of
the People's Bank of China, said recently that China's economy has strong resilience, great potential and sufficient policy space, and that it is necessary to have confidence and patience in China's sustained and stable economic growth. Next, the central bank will continue to implement prudent monetary policy accurately and effectively, strengthen counter-cyclical adjustment, fully support the real economy, promote full employment, and maintain currency stability and financial stability.
Can LPR follow the downward adjustment?
Previously, driven by large state-owned banks, China's banking industry set off a new round of deposit interest rate "reduction tide", superimposed on the 7-day reverse repurchase "interest rate reduction", the market is concerned about whether the late medium-term lending facility (MLF) interest rate and LPR (loan market quotation rate) will go down accordingly. From the experience of recent years, the synchronous reduction of "reverse repurchase rate-MLF interest rate-LPR" is regarded as a complete process of interest rate reduction.
According to the analysis of each LPR adjustment in the past, if the MLF interest rate is lowered, the LPR will be lowered. When the MLF interest rate remains unchanged, the LPR has been lowered twice, mainly because of the reduction of the benchmark or the reduction of the deposit cost.
If LPR is lowered in June, it will drive down the mortgage interest rate of enterprises and residents, but the adjustment of the stock mortgage interest rate will have to wait until the re-pricing date.
Wang Qing predicts that the MLF operating interest rate will also be lowered by 0.1 percentage points to 2.65% on June 15. Considering the general law of the linkage adjustment of the policy interest rate system, after the short-end policy interest rate is lowered, the middle-end policy interest rate (MLF operating interest rate) will follow up. In view of the fact that the MLF operating interest rate is the pricing basis of the LPR quotation, if the MLF operating interest rate is lowered in June, the LPR quotation will follow up on the 20th. Mingming, chief economist
of CITIC Securities, believes that, combined with the policy tone of strengthening counter-cyclical adjustment, the probability of interest rate cuts in the coming months is high, and there is a possibility that the MLF interest rate will be cut by 5 to 10 basis points as early as June 15.
But Mingming also warned that lowering MLF interest rates could promote a faster decline in incremental lending rates and release a stronger "steady growth" signal to support economic recovery. However, considering the rising pressure of short-term depreciation of the RMB exchange rate and the uncertainty of the Fed's stop raising interest rates, this week's MLF operation may still have some suspense.
"The MLF operation will be launched in June this week, and the Federal Reserve's June interest rate meeting will also be held.". Under the environment of weak economic fundamentals, there is a certain possibility of subsequent MLF interest rate cuts, and June has become an important policy observation period. Mingming said.
In his view, if the MLF interest rate is lowered, the one-year and five-year LPR will follow suit. As for the reduction, at present, it is more a liquidity supplement tool, the necessity is relatively limited in the short term, and it is expected that there will be room for reduction in the third quarter.
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