The latest monetary policy implementation report of the Central Bank mentioned multiple times to "maintain the total gate of the money supply" after a lapse of a year, and first mentioned "maintain macro leverage ratio basically stable", revealing new trends.

  On November 26, the Central Bank released a report on the implementation of China's monetary policy for the third quarter of 2020 (hereinafter referred to as the "report").

Compared with the second quarter report, there are more new expressions.

Among them, for the main policy ideas and reporting requirements of the next stage, we will attach importance to expected management to maintain stable price levels.

Handle internal and external balances and short-term and long-term relationships, implement normal monetary policies for as long as possible, and keep the macro leverage ratio basically stable.

  Li Chao, chief economist of Zheshang Securities, believes that the report puts forward for the first time "maintain the basic stability of the macro leverage ratio", which reflects the central bank's attention to financial stability issues. It is expected that subsequent stabilization of the macro leverage ratio will gradually become a policy focus.

The robustness of the macro-leverage ratio also embodies the essentials of inter-cyclical adjustment, and reserves more policy space for the next round of economic cyclical fluctuations.

  In terms of monetary policy, in addition to reiterating the “main gate of the money supply”, the report also proposes to “maintain the growth rate of broad money supply and social financing scale to basically match the growth rate of nominal GDP reflecting potential output. The economy returns to potential output".

  Monetary policy re-emphasizes "maintain the money supply gate"

  For the next stage of monetary policy orientation, the report still emphasizes that "a sound monetary policy is more flexible, moderate, and precise."

But compared with the content of the second quarter report, some new expressions have also appeared.

  For example, following the Monetary Policy Implementation Report in the second quarter of 2019, this report reiterated "maintain the total gate of the money supply"; in the second quarter report of this year, "maintain the reasonable growth of money supply and social financing scale" was adjusted to "maintain broad The growth rate of money supply and the scale of social financing basically matches the growth rate of nominal GDP reflecting potential output."

details as follows:

  As a weather vane for the direction of monetary policy in the next quarter, what signals will the changes in the above expressions release?

Does it mean that monetary policy is tightening?

  According to IMF forecasts, my country will be the only major economy in the world that has achieved positive growth this year.

As the economy continues to recover, the macro policy orientation has changed significantly since May, and the monetary policy has basically returned to normal.

  On the one hand, no new stimulus policy measures will be introduced, and special and phased policies will gradually withdraw after completing their missions; on the other hand, strong financial supervision continues to increase, and risk management continues to increase.

  Wen Bin, chief researcher of Minsheng Bank, told CBN that the monetary policy has increased liquidity in the early stage of the epidemic, and the effect has been significant.

As the economy stabilizes and rebounds and enters the recovery growth channel, liquidity supply, pace, and scale have tightened, market interest rates have rebounded along with economic fundamentals, but liquidity has been maintained at a reasonable level, and monetary policy has maintained a sound tone.

  "In the short term, the probability of the central bank's RRR cut has decreased significantly, and more use of monetary policy tools such as'reverse repurchase + spicy powder' to maintain the market's short, medium and long-term liquidity is reasonably sufficient. At the same time, the central bank will also use re-lending and rediscount tools. , To further increase support for small and micro enterprises, these tools all reflect the flexibility, appropriateness and precise orientation of the central bank’s monetary policy.” Wen Bin said.

  The report emphasizes that the precise drip irrigation function of structural monetary policy tools should be enhanced and the directness of policies should be improved.

Pay attention to anticipation management and maintain stable price levels.

Handle internal and external balances and short-term and long-term relationships, implement normal monetary policies for as long as possible, and keep the macro leverage ratio basically stable.

We will work hard to prevent and resolve major financial risks, improve financial risk prevention, early warning, disposal, and accountability systems, maintain financial security, and firmly hold the bottom line of preventing systemic financial risks.

  Improve bond default risk prevention and disposal mechanisms

  Recently, many AAA-level state-owned enterprise debt defaults have continued to ferment, local government rescue expectations have failed, and relevant entities are suspected of "evading debts", causing a series of chain reactions.

  Against the background of frequent defaults in the bond market, on November 21, the 43rd meeting of the Financial Committee of the State Council made it clear that it adopted a "zero tolerance" attitude towards various violations of laws and regulations and various debt evasion in the bond market. , Requiring financial regulatory authorities and local governments to earnestly perform their responsibilities, emphasizing that various market entities must strictly abide by laws, regulations and market rules.

Propose a sound risk prevention, detection, early warning, and disposal mechanism, strengthen the investigation of hidden risks, maintain reasonable and sufficient liquidity, and firmly hold the bottom line of avoiding systemic risks.

  The third quarter report stated that it actively improved the construction of the bond market management system and promoted the uniformity of corporate credit bond information disclosure standards.

Adhere to the principles of marketization and rule of law, and improve bond default risk prevention and handling mechanisms.

Strengthen the overall supervision of financial market infrastructure, realize the interconnection of bond market infrastructure, and continue to promote the construction of custodian banks and transaction reporting databases to ensure the overall safe, stable and efficient operation of the financial market.

Actively and steadily promote the opening of the bond market, integrate market entry channels, optimize market entry procedures, and provide foreign investors with a more friendly and convenient investment environment.

  Feng Lin, a senior analyst at Oriental Jincheng Research and Development Department, believes that considering the withdrawal of easing policies, the marginal shrinkage of the credit environment, and the current round of defaults, the valuation and pricing of local state-owned enterprise credit bonds is facing reconstruction, and regional, industry, and grade credit spreads will There is a greater divergence. The weaker-qualified state-owned enterprises in sensitive regions or industries are facing the possibility of increasing the difficulty of financing and increasing the risk of default. It is expected that the credit risk will increase marginally next year, and the trend of credit risk migration to local state-owned enterprises and high-level enterprises is still Will continue.

On the other hand, the supervisory authority also emphasized that policy adjustments should be based on accurate assessments of economic conditions, and should not weaken the effect of financial services on the real economy, nor should there be a “policy cliff”.

The Financial Committee meeting also clearly stated that it is necessary to "maintain reasonable and abundant liquidity, and firmly hold the bottom line of avoiding systemic risks."

This indicates that the pace of credit contraction in the future will be slower, and the possibility of a significant deterioration in credit fundamentals is unlikely. There is no need to worry too much about the default risk of the bond market next year.

  The exchange rate has entered the appreciation channel, guiding enterprises to establish the concept of "financial neutrality"

  Since the end of May, the RMB exchange rate has entered a rapid appreciation channel, rising by about 6,000 basis points in half a year.

  Regarding the RMB exchange rate, this report elaborated in Box 3 "Towards a more market-oriented RMB exchange rate formation mechanism".

The report pointed out that the reform of the RMB exchange rate formation mechanism will continue to adhere to the direction of marketization, optimize the allocation of financial resources, enhance exchange rate flexibility, focus on expected guidance, and achieve basic stability of the RMB exchange rate at a reasonable and equilibrium level under the framework of general equilibrium.

  The renminbi exchange rate has repeatedly hit new highs during the year, which has also brought new challenges to corporate foreign exchange hedging.

How should companies prevent exchange rate risks?

  The report emphasizes that speeding up the development of the foreign exchange market, guiding companies to establish the concept of "financial neutrality", managing exchange rate risk through foreign exchange derivatives, guiding financial institutions to adhere to the concept of "risk neutrality", and providing exchange rate risk management for import and export companies based on the principle of actual needs service.

Steadily promote the convertibility of RMB under capital account, improve the policy framework and infrastructure for the cross-border use of RMB, and increase the facilitation of the use of RMB in cross-border trade and investment.

  Wang Chunying, deputy director of the State Administration of Foreign Exchange, said earlier that companies should establish a risk-neutral concept.

First, it is necessary to change the unilateral linear thinking that the RMB exchange rate is either rising or depreciating, and establish a sense of two-way fluctuations in the RMB exchange rate.

Second, we must trade reasonably and prudently, and appropriately hedge exchange rate exposure.

Third, it is necessary to control currency mismatches as much as possible and rationally arrange the currency structure of assets and liabilities.

Fourth, don't use exchange rate hedging tools as speculative arbitrage tools to take unnecessary risks.

  Li Chao believes that the central bank recently reduced the foreign exchange risk reserve ratio for forward foreign exchange sales from 20% to 0, and banks have taken the initiative to fade out the use of the "countercyclical factor" in the quotation model of the central parity rate of RMB against the US dollar, which will help the RMB The marketization of the exchange rate mechanism was promoted.

It is expected that the renminbi will maintain a high probability of appreciation in the future. After the epidemic, my country’s economy will be relatively dominant in the world, monetary policy will return to normalization, and China-US interest rates will widen; my country’s trade surplus will continue to expand, and the inter-bank foreign exchange market renminbi supply and demand structure will change; internal conflicts in the United States will rise The staged weakening of the Sino-US game is a favorable factor for the RMB exchange rate.