As expected by the market, MLF (Medium-Term Lending Facility) will continue to be done at the same amount and parity in May.

  On May 16, the central bank issued an announcement stating that in order to maintain reasonable and sufficient liquidity in the banking system, 100 billion yuan of MLF operations and 10 billion yuan of open market reverse repurchase operations were carried out on that day. flat.

  So far, the MLF operating rate has remained unchanged for 4 consecutive months, which means that after the policy interest rate cut in January, monetary policy continues to be in an observation period in terms of price-based tools.

Although the MLF operating interest rate has not changed, many industry insiders interviewed by the reporter said that under the background of intensified supervision to guide the decline of deposit interest rates, the one-year LPR (loan market quotation rate) may be lowered separately this month. As for the 5 Year LPR, there is greater uncertainty.

 Market liquidity is abundant

  This trend continued in May after MLF operations returned to equal parity in April.

Data shows that on May 16, 20 billion yuan of reverse repurchase expired; on May 17, 100 billion yuan of MLF will expire.

After hedging the reverse repurchase due today and the MLF due tomorrow, the central bank's capital investment has achieved a net return of 10 billion yuan.

  Many industry insiders said they were not surprised when evaluating the operation of the central bank.

Wang Qing, chief macro analyst of Dongfang Jincheng, believes that the MLF did not increase the volume of sequels in May, mainly due to the implementation of the RRR cut on April 25, and the superposition of factors such as the central bank's turnover of balance profits. Recently, the market liquidity is relatively abundant, and there is no need for MLF supplements the amount of hydration.

  Zhou Maohua, a macro analyst at China Everbright Bank, also told reporters that "the current market money supply is sufficient." In April, M2 returned to above 10% year-on-year, indicating that the money supply was sufficient, mainly due to the central bank's stable growth policy. Structural tools have been launched one after another, and the base currency has been increased.

  This is also visually confirmed in the data.

Recently, the money market funding rate has continued to operate at a low level, and the weighted average interest rate of DR007 (7-day pledged repo rate between banks) has been fluctuating around 1.5%.

On May 16, Shibor (Shanghai Interbank Offered Rate) also showed that the overnight variety was reported at 1.311%, the 7-day period was up 1.714%, and the 1-month period was reported at 1.978%, all of which were down compared to the previous period.

  At the same time, in April, the average yield of one-year commercial bank (AAA-level) interbank certificates of deposit was 2.45%, which has further dropped to the range of 2.30% to 2.39% since May.

This level has formed a relatively obvious "inversion" with the MLF interest rate, which means that the overall financing cost of banks in the money market has been significantly lower than the cost of financing from the central bank through MLF.

From historical experience, during the "inversion" period, MLF operations are mostly based on the same or reduced amount, mainly because the demand for MLF operations by commercial banks has declined.

  In the opinion of many industry insiders, the main problem in the current financial sector is not the lack of market liquidity, but the impact of factors such as the epidemic and the decline in real estate, and the demand for loans from enterprises and residents is obviously weak.

  Therefore, Wang Qing suggested that the next focus is to plan a new combination of policy tools to effectively boost the financing demand of the real economy, and to promote the growth rate of various loan balances from falling to rising as soon as possible. This is to enhance the macroeconomic growth in the second half of the year. Momentum and the key to achieving the annual GDP growth target of "about 5.5%".

  This also means that there is still the possibility of lowering interest rates in the future.

Wang Qing further stated that in order to effectively boost the financing needs of the real economy, the reduction of loan interest rates by reducing the reserve ratio and interest rates will further guide the reduction of loan interest rates, and promote the growth rate of various loan balances from falling to rising as soon as possible, thereby creating conditions for a strong economic recovery in the second half of the year. It may become another important focus of the next monetary policy operation.

  Zhou Maohua also believes that the domestic economy is still facing downward pressure in the short term, and the prudent monetary policy will remain flexible and appropriate to continue to provide support for the recovery of the real economy. Under the circumstances, more structural tools and reform measures will be used to provide targeted relief for the real economy, increase support for weak links and key emerging areas of the real economy, stabilize employment and promote steady recovery of domestic demand.

  LPR rates may be cut individually

  In addition, from the perspective of the MLF operating interest rate, since the reduction in January this year, it has been "on hold" for 4 consecutive months.

In this regard, Zhou Maohua said that this may be to avoid the market's irrational depreciation expectations.

"Affected by factors such as the accelerated tightening of the Fed's policy, the RMB has recently depreciated sharply against the US dollar, and the central bank has maintained the stability of the MLF policy interest rate, which will help avoid potential irrational depreciation expectations in the market."

  Wang Qing also believes that the current downward pressure on the domestic economy has further increased, but the recent overseas financial environment has tightened significantly, represented by the Federal Reserve's accelerated rate hike and announcement of a plan to shrink its balance sheet in May.

Affected by this, the fluctuation of the RMB exchange rate increased significantly after late April, and the overall depreciation occurred to a certain extent.

From the perspective of taking into account both internal and external factors, it is prudent to take substantial easing measures in domestic monetary policy at this stage.

  The impact of the epidemic is the main pressure on the current economic downturn, and it has the characteristics of stages. In this context, policy regulation is more inclined to focus on structural policies.

In fact, in response to the drag of the real estate decline on the macro economy, the central bank has lowered the lower limit of the first home loan interest rate on May 15, indicating that the targeted control measures for the property market are also advancing.

These factors, to some extent, reduced the urgency of the policy rate cut in May.

  Although the MLF interest rate has not changed this time, most of the market views believe that the one-year LPR is more likely to be lowered this month. The logic is that the market-oriented adjustment mechanism drives down the weighted average interest rate of deposits, which in turn triggers a simultaneous reduction in LPR.

  The central bank once proposed to "focus on stabilizing the cost of bank liabilities" at its regular meeting in the first quarter. In April, it formally established a market-oriented adjustment mechanism for deposit interest rates. Member banks refer to the bond market interest rate represented by the 10-year Treasury bond yield and the one-year LPR The representative loan interest rate, and the deposit interest rate level is adjusted reasonably.

  The establishment of this mechanism aims to facilitate banks to track changes in market interest rates, improve the market-based pricing capabilities of deposit interest rates, and maintain a healthy competition order in the deposit market.

Some analysts say that the immediate goal is to push the rigid deposit rate to follow the market rate cut.

  After the establishment of the market-oriented adjustment mechanism for deposit interest rates, state-owned banks such as the Industrial and Agricultural Bank of China Postal Savings Bank and most joint-stock banks have lowered their interest rates on time deposits with a maturity of more than one year and large-denomination certificates of deposit in late April, and some local corporate institutions have also responded accordingly. make a downgrade.

According to the latest survey data, in the last week of April (April 25-May 1), the weighted average interest rate of new deposits in financial institutions nationwide was 2.37%, down 10 basis points from the previous week.

  Meng Xiangjuan, chief bond analyst at Shenwan Hongyuan, believes that the decline in the cost of bank liabilities may lead to a synchronous reduction in LPR additions. It is expected that the LPR quotation in May may be lowered accordingly, so as to achieve a reduction in the comprehensive financing cost of enterprises.

  Based on historical experience, under the condition that the MLF interest rate does not change, the reduction of LPR quotations often requires two comprehensive RRR cuts in a row.

For example, two comprehensive RRR cuts in July and December 2021 will trigger a 5 basis point reduction in the one-year LPR quotation in December.

At present, the RRR cut has been implemented in April, which is the first time in the continuous calculation.

"However, considering that in addition to the recent sharp decline in money market interest rates, regulators are stepping up efforts to guide deposit interest rates down, it is expected that the one-year LPR quotation in May may still be lowered." Wang Qing said.

  However, as for whether the 5-year LPR quotation will be lowered at the same time, industry analysis shows that there is greater uncertainty, especially in the context of the central bank lowering the lower limit of the first-home mortgage interest rate on May 15.

  Zhou Maohua also believes that, considering that the short-term economy is still facing downward pressure, the financing needs of the real economy are weak, and the central bank has issued a total + structural tool to stabilize the cost of bank deposit liabilities.

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