(Economic Watch) What is the impact of the 10 basis points reduction in the rate of policy tools by the People's Bank of China?
China News Agency, Beijing, January 17 (Reporter Xia Bin) After a lapse of nearly two years, the People's Bank of China once again lowered the interest rate of policy tools.
The People's Bank of China announced on the 17th that in order to maintain reasonable and sufficient liquidity in the banking system, it launched a 700 billion yuan (RMB, the same below) medium-term lending facility (MLF) operation and a 100 billion yuan open market reverse repurchase operation that day.
The winning bid rates for medium-term lending facility (MLF) operations and open market reverse repurchase operations both fell by 10 basis points.
Why did you choose to drop 10 basis points at this time?
Xie Yaxuan, chief macro analyst at China Merchants Securities, believes that the "weak expectations" problem exposed by the current downward pressure on the economy is the most difficult of the three challenges.
"Weak expectations" will weaken companies' willingness to operate, lead to wider employment problems, and ultimately have an adverse impact on "steady growth".
In view of the strong signaling significance of interest rate cuts, the central bank's choice to cut the MLF interest rate a year ago may be more concerned with boosting corporate expectations and stabilizing employment.
"The magnitude is in line with expectations, and the timing slightly exceeds market expectations." Zhao Wei, chief economist of Sinolink Securities, pointed out that the reduction of interest rates at this time may be related to the economic downturn at the beginning of the year and weak financing needs.
Continue to add water while cutting prices. After the RRR cut last month, MLF once again invested a net 200 billion yuan, which further highlights the policy's "afterburner" attitude.
Wen Bin, chief researcher of China Minsheng Bank, mentioned that the rate cut this month reflects the requirement for an organic combination of policy efforts to be appropriately advanced, cross-cyclical and counter-cyclical.
For this rate cut, on the one hand, as the downward pressure on China's economy is still relatively large, the policy needs are more urgent. The rate cut in January at the beginning of the year reflects the requirement that monetary policy should be implemented first.
On the other hand, the 10 basis point rate cut this time is the same as the first rate cut in the early stage of the epidemic.
What would be the impact of a 10 basis point reduction?
Liang Si, a researcher at the Bank of China Research Institute, said that the reduction in policy tool interest rates will help ease the pressure on financial institutions' debt to further reduce corporate financing costs.
The policy tool interest rate cut by 10 basis points means that it will directly reduce the burden on commercial banks from the policy level, which will help reduce the cost of bank liabilities.
"Because the LPR (loan market quoted rate) quotation is directly linked to the 1-year MLF interest rate, and LPR is the pricing benchmark for banks to issue loans, after the MLF is lowered, the LPR interest rate may continue to be lowered, which will help further Guide commercial banks to reduce loan interest rates, drive down the comprehensive financing costs of enterprises, help enterprises operate stably and accelerate their recovery, and effectively help stabilize growth." Liang Si said.
Wen Bin believes that since the 1-year MLF interest rate has dropped by 10 basis points, it is expected that the one-year and 5-year LPR quotations on the 20th of this month will likely drop by 10 basis points simultaneously, which will help to promote the stability of the real economy. .
He further said that in the next stage, the policies that have been introduced are expected to continue to play a role. It is expected that the central bank will continue to use reverse repurchase, MLF and other conventional operations to maintain a reasonable and sufficient liquidity, and at the same time, more structural policies will be used to accurately support entities. important areas and weak links in the economy, and deal with various internal and external risks such as the Fed’s monetary policy shift.
Zhao Wei believes that the new round of monetary easing cycle, interest rate cuts may not be the end.
Experience shows that the monetary easing cycle generally corresponds to multiple RRR cuts and interest rate cuts; in the new round of easing cycle that started at the end of last year, RRR cuts and interest rate cuts are already on the way, and there is still the possibility of further easing during the year, and the pace and magnitude may depend on the follow-up measures to stabilize growth. landing.
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