Author: Duan Siyu
Markets have focused on the MLF (Medium-Term Lending Facility) this month, following an unexpected rate cut last month.
On September 15, the central bank launched a 400 billion yuan MLF operation. After hedging the matured 600 billion yuan, the base currency of 200 billion yuan was returned. At the same time, the current MLF operation interest rate was 2.75%, the same as the previous period.
It is worth noting that this is the second consecutive month that MLF has continued to reduce its volume.
Industry insiders interviewed by First Financial said that this is mainly related to the recent market interest rate being significantly lower than the policy interest rate and the reduction in market demand. It also released a policy signal to avoid excessive easing of market liquidity and guide banks to increase credit to the real economy.
In this context, most opinion analysis said that the time node for the upward trend of capital interest rates may be approaching.
Wen Bin, chief economist of China Minsheng Bank, said that the main line of maintaining extremely abundant funds in the early stage has been weakened, and the period of the most accommodating funds may have ended, and funds will gradually converge.
However, before the economy stabilizes, the monetary and financial environment will remain friendly, and the pattern of reasonable and abundant liquidity will remain unchanged.
Zhang Xu, chief fixed income analyst at Everbright Securities, also told reporters that the rise in capital interest rates should be sooner rather than later, but this does not mean tightening monetary policy. It aims to guide the liquidity of the banking system from an apparently loose state to a reasonably sufficient one return; at the same time, this upward movement is intermittent and takes into account market sentiment.
Continue to reduce the amount for two consecutive months
According to the announcement of the central bank, the scale of the operation was the same as that in August. In September, MLF continued to reduce the amount and continued to do it, breaking the previous model of continuous production of the same amount for many consecutive months.
The market was not surprised by this change.
This is mainly due to the fact that the current liquidity is still at an apparently sufficient level, the funding rate of each term and the yield of interbank certificates of deposit continue to operate at a low level, and the bidding demand for MLF by primary dealers is weak.
For example, the average yield of one-year interbank certificates of deposit of commercial banks (AAA grade) in August was 1.95%, down 26 basis points from the previous month, significantly lower than the one-year MLF operating interest rate of 2.75%, and the degree of inversion between the two is historical. low level.
In September, although the capital interest rate has risen to a certain extent, the average value of R007 and DR007 is 1.56% and 1.43% respectively, which is still far below the policy interest rate level, reflecting that the capital side is still loose.
"With the long-term decoupling of primary and secondary interest rates in the money market, primary dealers' demand for reverse repurchase and MLF operations has declined, and the current pressure on banks' capital utilization and interest margins is greater, and they are more sensitive to high-cost liabilities. Wen Bin said that in this context, the "passive" reduction of MLF with lower cost performance is in line with the market choice.
At the same time, this move is also to curb the idle arbitrage of funds.
Over the past period of time, under the low capital interest rate, the bond market plus leverage arbitrage behavior has intensified, and the bond market leverage ratio has been operating at a high level.
According to statistics, since September, the transaction volume of pledged repo and R001 have continued to rise, with an average value of 6.74 and 5.96 trillion yuan respectively, indicating that institutions are still willing to increase leverage.
Wen Bin believes that the high leverage ratio will exacerbate the vulnerability of funds in the inter-bank market, and once the liquidity in the future converges marginally, it will lead to large fluctuations in the interest rate of funds.
For this reason, under the background that the supply side of funds is relatively loose, the demand side is still weak in general, and the vulnerability of funds is increasing, the central bank’s initiative to increase investment is not strong.
In September, MLF again slightly reduced the volume and continued to do it, which can promote the return of market liquidity to a reasonable and sufficient amount, and can also continue to cool down the increase in leverage of institutions to maintain market stability.
Zhou Maohua, a macro analyst at China Everbright Bank, also told Yicai that the central bank's continuation of 400 billion yuan fully meets the funding needs of financial institutions.
"Judging from the high level of M2 in August, the domestic money supply is sufficient; at the same time, the market interest rate remains low, and the market liquidity is slightly loose. ."
In addition to the above factors, stabilizing the exchange rate is also regarded as one of the reasons for the continued reduction of MLF.
Since mid-August, under the expectation of the Fed's continued tightening policy, the US dollar index has continued to climb, and the RMB exchange rate has continued to overshoot. The range exceeds 2000 points.
In this regard, the central bank announced that starting from September 15, the foreign exchange deposit reserve ratio of financial institutions will be lowered by 2 percentage points from 8% to 6%, in order to release more US dollar liquidity to the market.
"At present, the foundation for the recovery of the domestic economy is not yet solid, and stable growth is still the primary goal of monetary policy. However, in the context of continued interest rate hikes by major economies such as the United States and Europe, and increased cross-border capital flows, the central bank has reduced foreign exchange deposit reserves. It also means that the importance of stabilizing the exchange rate has increased." Wen Bin said that under the consideration of internal and external balance, the domestic monetary policy will continue to increase in the short term and the room for easing will be narrowed.
However, considering the economic recovery and the policy goal of stabilizing growth, liquidity still needs to continue the loose pattern.
The consensus in the industry is that the possibility of a significant reduction in MLF in the short term is not high.
Moreover, from the perspective of liquidity influencing factors, the amount of capital disturbance will increase in the future, and the total policy needs to continue to support it, and MLF will maintain the same amount or slightly reduce the amount.
Operational interest rates on hold
Although the scale of MLF operations has narrowed this month, the operating interest rate remains the same as the previous period.
Last month, in order to stabilize the foundation of domestic economic recovery and speed up the transmission of credit liberalization, the MLF bid-winning interest rate fell by 10bp to 2.75%, exceeding market expectations. The 5-year LPR (loan market quotation rate) was also significantly reduced by 15bp that month.
Today, the effect of the previous rate cut is showing, and monetary policy is in a short-term observation period.
Wang Qing, chief macro analyst at Oriental Jincheng, told reporters that the unchanged MLF interest rate this month is in line with market expectations.
On the one hand, there have been slight fluctuations in the recent economic recovery process, but the urgency of successively lowering the MLF interest rate is not high.
Historical data shows that even in the outbreak of the epidemic in early 2020, the MLF interest rate has not been lowered for two consecutive months.
On the other hand, Wang Qing said that after the interest rate cut in August, various market interest rates have generally declined, and the regulators are focusing on dredging the transmission chain from loose money to loose credit by holding some financial institutions’ monetary and credit situation analysis symposiums. And observe the policy effect.
At the same time, in the context of the continuous introduction of the policy of stable growth, the impact of the MLF interest rate cut in August on macroeconomic indicators such as investment and consumption, as well as on the property market, remains to be further observed.
Zhou Maohua also told reporters that the financial data in August reflected that the financing needs of the real economy were improved, the financing structure was optimized, and the domestic economy continued to recover. At a low level, overseas inflation is high and the central bank has turned to a tightening environment. The central bank needs to guard against the potential risks of excessive easing policy and take into account the external balance. It is expected that the possibility of further interest rate cuts by the central bank in the short term is low.
With the MLF interest rate on hold this time, it is expected that the LPR will likely remain stable this month.
However, it should be noted that the interest rate of bank deposits has continued to decline recently. The fixed deposit interest rates of many large state-owned banks and joint-stock banks, including 3-month, 6-month and 1-year terms, have been reduced by 10 basis points since September 15. , the 3-year time deposit rate was cut by 15 basis points.
Therefore, some analysts say that the possibility of a separate reduction in the 5-year LPR quotation cannot be ruled out.
Looking forward to the future, Wang Qing believes that whether it is a quantitative tool or a price tool, monetary policy has the conditions to make further efforts in the direction of stable growth.
Taking into account various factors, it is expected that there is still room for the MLF interest rate to be lowered before the end of the year, and it may be implemented in October at the earliest; from the perspective of cherishing the monetary policy space and taking into account the balance of multiple parties, the reduction rate will still be 10 basis points.
Zhou Maohua also mentioned that considering the large amount of MLF expiry in the second half of the year, and at the same time, it can effectively provide banks with long-term, low-cost funds and ease the pressure on interest margins of some banks. It is expected that there will be a hedging RRR cut.
Funding rates may rise
As MLF continues to shrink for two consecutive months, some analysts say that the main line of extremely abundant funds in the future will be weakened.
Wen Bin said that the most accommodating period of funds may have ended, and the funds will gradually converge.
Zhang Xu also said that this round of DR007 has been running at a low level for longer than the previous round, and it is expected that the time when the capital interest rate will rise is nearer.
However, the increase in the capital rate does not mean the tightening of monetary policy, but a marginal change. This is not only the insistence on not engaging in flooding and overdrafting the future, but also the balance between stable growth, stable employment and stable inflation.
In fact, under the combined effect of supply and demand, the funding level has changed since September.
The latest data shows that on September 15, most of the Shibor (Shanghai Interbank Offered Rate) short-term varieties went up, the overnight varieties went up 5.3BP to 1.226%, the 7-day period fell 1BP to 1.547%, and the 1-month period was flat at 1.508 %; the 7-day interbank pledged repo rate has also rebounded slightly recently.
"Since September, it will gradually move from easing to convergence, and the interest rate center may rise slightly, but it will remain low as a whole. It is expected that DR001 will run around 1.2%-1.5% from September to October." Wen Bin said.
However, Wen Bin also mentioned that there is no need to worry too much about changes in capital. In the context of the current overall downturn in real estate, the repeated epidemic of the epidemic, and the downward pressure on exports, the slope of economic recovery will not increase significantly, excessive liquidity and The possibility of tightening too quickly is also not strong.
"The extent of future interest rate hikes will ultimately depend on the marginal changes in economic fundamentals and the sustainability of the credit boom. We will focus on the restoration of the real estate chain."