What are the signals of the apparent "tapering" of the central bank's MLF operation

Per reporter Xiao Shiqing Per editor Ma Ziqing

On April 4, the People's Bank of China announced that in order to maintain the reasonable and sufficient liquidity of the banking system, it launched a 17 billion yuan medium-term lending facility (MLF) operation on the same day, with a term of one year and an interest rate of 1700.2%.

Since the central bank launched the MLF operation in August last year to reduce the interest rate to 8.2%, the MLF interest rate has remained unchanged for eight consecutive months.

In addition, since the maturity scale of MLF this month was 1500 billion yuan, the central bank invested 1700 billion yuan on the same day, achieving a net investment of 200 billion yuan, which also means that this month's MLF is actually a continuation of the amount of parity. It is worth noting that although MLF continued to increase the pace of sequels this month, the volume of deliveries shrank compared with previous months.

Zhou Maohua, a macro researcher at the financial market department of China Everbright Bank, told the "Daily Economic News" reporter that this indicates that the central bank has fine-tuned its policies. First, at present, the overall interest rate in the domestic market is at a reasonable level, the total amount of money and credit has maintained a moderately loose level, and the central bank's short-term further policy is not urgent. Second, with the recovery of the domestic economy and the forward development of policies, the central bank needs to pay attention to the transmission of policies to the recovery of domestic demand, reasonably adjust the pace of credit delivery, prevent the risk of potential funds turning from real to virtual, and improve the accuracy and quality of policy support.

At the same time, Zhou Maohua also pointed out: "The net release of MLF funds by the central bank in April also released to the market that the central bank maintained the overall stability and continuity of policy, maintained reasonable and sufficient market liquidity, and prudent monetary policy continued to provide strong support for the economy to stabilize market expectations." ”

Achieved a net investment of 200 billion yuan

In April, the MLF operation volume was 4 billion yuan, and the maturity volume was 1700 billion yuan, which means that the central bank implemented a net investment of 1500 billion yuan this month, which is the fifth consecutive month of additional volume. However, from the perspective of delivery volume, the scale of MLF operations this month has obvious signs of "shrinkage" compared with previous months. Specifically, MLF was released at 200 billion yuan in March this year, 5 billion yuan in February and 3 billion yuan in January.

Wang Qing, chief macro analyst of Oriental Jincheng, believes that it is currently in the early stage of economic repair, focusing on consolidating the foundation for economic recovery, and still needs to maintain the trend of credit growth. On the one hand, under the prospect of continuous credit growth, commercial banks' demand for MLF operations increased, and at the same time, it also released the signal that the policy side continued to stabilize the growth orientation. This will help maintain the stability and continuity of credit delivery and boost market confidence. The just-released communiqué of the regular meeting of the Monetary Policy Committee for the first quarter of 4 called for "reasonable credit growth and a steady pace." ”

Wang Qing further pointed out that considering the rapid progress of credit delivery in the first quarter, it is expected that the increase in credit in the second quarter will decline somewhat - the sharp decline in bill interest rates since April, or the slowdown in the pace of credit release in the near future - which is also the reason for the small scale of MLF increase this month.

Dong Ximiao, chief researcher of CMF Finance, believes that the scale of social financing and RMB loans grew strongly in March, and the financing demand of the real economy recovered significantly, although the comprehensive RRR reduction has landed, the banking system still needs to supplement medium and long-term liquidity. This month, the PBOC over-renewed the 3-year Medium-Term Lending Facility (MLF), but the amount of over-renewal is not large, which will moderately increase the medium- and long-term liquidity of the banking system and support banks to better serve the real economy.

Predicting the trend of subsequent MLF operations, Wang Qing believes that taking into account the economic recovery situation and credit delivery trend in the first half of the year, we judge that MLF is expected to continue in the same amount or slightly increase the amount of sequels in May. Given the landing of the RRR cut in March, it is unlikely that the RRR cut will continue to be implemented in the second quarter, and the increase in the continuation of MLF will become the main tool for the central bank to replenish medium- and long-term liquidity to the banking system.

How will the LPR "go"?

Every reporter noted that up to now, the MLF interest rate has remained unchanged for 8 consecutive months.

Analyzing the reasons for the unchanged MLF interest rate, Wang Qing believes that the MLF operating interest rate in April remained unchanged, in line with market expectations; Since the beginning of the year, the price level has been low, but whether the policy interest rate cut can be implemented will mainly depend on the progress of economic repair.

Previously, the Monetary Policy Committee of the People's Bank of China held its regular meeting in the first quarter of 2023, pointing out that it is necessary to improve the formation and transmission mechanism of market-oriented interest rates, optimize the central bank's policy interest rate system, give play to the important role of the market-oriented adjustment mechanism of deposit interest rates, give play to the efficiency and guiding role of the reform of the loan market quotation interest rate, and promote the steady reduction of the comprehensive financing costs of enterprises and the cost of personal consumer credit.

Predicting the subsequent interest rate adjustment trend, Zhou Maohua pointed out that the probability of LPR reduction this month is low, mainly because the MLF interest rate remains unchanged, the financial data in March continues to perform strongly, and the credit supply and demand are booming, reflecting that the market interest rate is generally at a reasonable level; The net interest margin pressure of the bank itself is greater; The domestic economy has recovered steadily, and real estate has shown a trend of stabilization and recovery. All of this has reduced the incentive for banks to cut LPR interest rates.

Wang Qing believes that in the context of the MLF interest rate is not moving, the current focus is to fully tap the potential of the deposit interest rate market-oriented adjustment mechanism and reduce the cost of bank deposits - the recent reduction of deposit interest rates by some small and medium-sized banks reflects this trend. In view of the fact that the current net interest margin of banks is at a historical low, reducing or controlling the cost of various liabilities of banks is the main driving force for "promoting the steady reduction of comprehensive financing costs and personal consumer credit costs of enterprises" and "guiding the continuous reduction of residential housing loan interest rates".