China News Network, June 6 (Zhongxin Finance Gong Hongyu) Policy interest rates have been reduced one after another! Following a 17 basis point cut in the 6-day reverse repurchase (OMO) operation rate and the standing lending facility (SLF) rate on June 13, the 7-day medium-term lending facility (MLF) rate was also cut by 10 basis points. Analysts expect the loan market quotation rate (LPR) to be announced on the 15th or also adjusted.

Why did the central bank cut interest rates intensively at this time? What kind of signal is transmitted? Can the mortgage be paid less?

June 6, 15-day reverse repo operation rate and MLF rate.

Interest rates are "linked" down

According to the news on the morning of the 13th official website of the central bank, the central bank carried out a reverse repurchase operation of 20 billion yuan in the form of interest rate bidding, and the interest rate was reduced to 1.9%. On the evening of the 13th, the central bank released the latest SLF interest rate table. After the SLF rate is reduced, it will be 2.75% for overnight varieties, 7.2% for 90-day varieties and 1.3% for 25-month varieties. On the 15th, the central bank launched a medium-term lending facility of 2370 billion yuan, and the winning interest rate of MLF was reduced to 2.65%.

June 6, SLF interest rate table.

Why are interest rates adjusted for many varieties? What is the difference between different interest rates? In fact, these three types of interest rates are important components of China's policy interest rate system. Among them, OMO is a short-term monetary policy tool, MLF is a monetary policy tool that provides medium-term base currency, and SLF is the normal liquidity supply channel of the central bank.

Behind the collective downward adjustment, it reflects the "linkage" relationship behind multiple types of interest rates. Zhou Maohua, macro researcher of the financial market department of China Everbright Bank, told the media that the central bank's recent interest rate cut supporting action is through the transmission mechanism of "reverse repo interest rate - interest rate corridor ceiling rate (SLF) - MLF interest rate - loan market quotation rate (LPR) - loan interest rate".

Historically, the spread between the 7-day SLF rate and the OMO rate is 100 basis points. The MLF interest rate often fluctuates in the same direction and amplitude with the OMO and SLF interest rates. Therefore, after the OMO adjustment on the 13th, the industry generally believes that the decline in SLF and MLF interest rates is an expected adjustment.

After 10 months of interest rate cuts, why at this time?

Prior to this round of adjustments, the OMO, SLF and MLF interest rates had all remained unchanged for ten consecutive months, with the last change being on August 2022, 8.

Why will interest rates be cut every other month? Just recently, Yi Gang, governor of the People's Bank of China, pointed out during his investigation in Shanghai that the People's Bank of China will continue to implement a prudent monetary policy with precision and force, strengthen counter-cyclical adjustment, fully support the real economy, promote full employment, and maintain currency stability and financial stability.

In the current economic context, experts believe that the current round of the central bank's "three arrows" interest rate cut is an action to strengthen counter-cyclical adjustment, releasing a positive signal to support the real economy, which is conducive to guiding market expectations and boosting confidence.

The latest financial data released by the central bank shows that although the current credit and social financing increment has remained generally stable, it still needs to be boosted. In May, the increase in the scale of social financing was 5.1 trillion yuan, a year-on-year increase of 56.1 trillion yuan, and RMB loans increased by 31.1 trillion yuan, a year-on-year increase of 36.5418 billion yuan.

In addition, from the perspective of price level, the national consumer price index (CPI) in May fell by 5.0% month-on-month and rose only 2.0% year-on-year, which was lower than market expectations.

Dong Ximiao, chief researcher of CMF, said in an interview with Zhongxin Finance that since the beginning of this year, China's macroeconomy has recovered, but the recovery trend is not stable enough, the confidence and expectations of market entities are still weak, and some small and medium-sized enterprises have not yet come out of the predicament.

Dong Ximiao mentioned that the central bank lowered the 13-day reverse repurchase operation interest rate on the 7th, sending signs that the policy interest rate has been relaxed. Subsequently, SLF and MLF rates also fell by 10 basis points. The decline in the policy rate has helped to further reduce the cost of funds for banks.

Yang Delong, chief economist of Qianhai Open Source Fund, believes that the central bank's interest rate cut is conducive to reducing the interest rate burden on corporate and personal loans, while promoting the inflow of funds into investment and consumption to stimulate economic recovery.

Infographic: People's Bank of China. Photo by Zhang Xinglong, reporter of China News Agency

If the LPR is lowered, can the mortgage be paid less?

With the MLF rate lowered, the LPR, which is the next link in interest rate transmission, is also considered to be likely to be lowered this month.

Dong Ximiao said that the current round of central bank interest rate adjustments, coupled with the multiple rounds of reduction in deposit interest rates since September 2022 and the decline in the cost of bank liabilities, make this month's LPR expected to end nine consecutive months of "standing still", or will fall by 9 to 9 basis points.

It is worth mentioning that if the LPR is lowered, the loan interest rate closely linked to the LPR is also expected to usher in a new wave of adjustment. Dong Ximiao mentioned that the LPR reduction is conducive to promoting the stable and healthy development of the real estate market, the interest rate of existing housing loans and new housing loans will fall, the burden of housing consumers will be reduced, and it will also help boost household consumption and investment.

In view of the current economic operation, Dong Ximiao believes that in the next step, it is necessary to take targeted measures as soon as possible to stabilize the expectations of market entities, boost the confidence of market entities, and further boost consumption and investment. (End)