On July 7, the National Interbank Lending Center authorized by People's Bank of China announced that the loan market quotation rate (LPR) on July 20, 2023 is: 7.20% for 1-year LPR and 3.55% for LPR over 5 years, both unchanged from the previous period.

This result is already expected by the market. On July 7, the central bank launched a 17 billion yuan 1030-year medium-term lending facility (MLF) and a 1-day reverse repurchase operation of 330 billion yuan in the open market, and the winning interest rates were unchanged at 7.2% and 65.1% respectively. The MLF operating rate is the pricing basis for LPR quotes.

In June this year, the LPR was revised downward after 6 consecutive months of inactivity, with 10 basis points for both 1-year and 5-year LPRs.

Wang Qing, chief macro analyst of Oriental Jincheng, pointed out that the MLF operating rate remained unchanged in July, and the LPR quotations of the two maturity varieties in June had just been lowered, so the LPR quotations in July remained unchanged in line with market expectations.

Wen Bin, chief economist of Minsheng Bank, also said earlier that the current period of observation of policy effects is now, and there is no need for further reduction of policy interest rates in the short term. The MLF interest rate is the anchor rate of the LPR (Loan Market Quotation Rate) quotation, and its changes will have a direct and effective impact on the LPR. While the MLF interest rate remained unchanged this month, the LPR in July is likely to remain stable.

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In the third quarter, it is possible to implement the second comprehensive RRR reduction in the year

The Beijing Youth Daily reporter noted that compared with interest rate cuts, there has been more discussion about RRR cuts in the market recently.

On July 7, Zou Lan, director of the Monetary Policy Department of the People's Bank of China, said at the press conference of the State Council's new office that the People's Bank of China will increase macro-control efforts according to the needs of the economic and price situation, accurately and effectively implement a prudent monetary policy, comprehensively use a variety of monetary policy tools such as deposit reserve ratio, medium-term lending facilities, and open market operations, maintain reasonable and sufficient liquidity in the banking system, maintain reasonable growth of monetary credit, and promote the steady reduction of corporate financing and household credit costs.

Zou Lan's statement mentioned the reserve requirement ratio, and many experts believe that the third quarter may usher in a RRR cut.

Wang Qing's analysis pointed out that after the MLF slightly increased in July, the possibility of the next RRR reduction increased. MLF operations and RRR reductions can supplement the medium- and long-term liquidity of the banking system, and the latter can also reduce the cost of funds for banks and release obvious signals of stable growth. Comprehensively considering the capital demand for the acceleration of wide credit in the third quarter, the scale of MLF operation in the future, and the need to boost market confidence, while MLF continues to increase and continue, it is possible to implement the second comprehensive RRR reduction in the third quarter, which is expected to land in July at the earliest, with an estimated RRR reduction of 7.7 percentage points.

Zhou Maohua, macro researcher of the financial market department of China Everbright Bank, also believes that the internal and external environment facing economic recovery is more complicated, and the People's Bank of China may appropriately reduce the RRR, release long-term low-cost funds through RRR reduction, stabilize the cost of bank liabilities, enhance the bank's credit expansion capacity, continue to increase support for the real economy and stimulate the vitality of micro subjects.

The chief economist of CITIC Securities clearly pointed out that data such as bill interest rates and loan demand index still reflect the current pressure on credit delivery, and the sustainability of financial data improvement is still uncertain, so monetary policy does not have the premise of turning in the short term. The low inflation environment also means that there is more room for subsequent loose monetary policy, or more to give way to structural policy tools, and form a combination of stable growth policies with tools to expand domestic demand and promote consumption. In addition, in the second half of the year, when the pressure of MLF maturity is greater or liquidity is significantly tightened, the possibility of the central bank lowering the RRR cannot be ruled out.

"Such an efficient and valuable tool should be used at a critical time, such as when the momentum of credit growth is clearly marginally declining." Zhang Xu, chief analyst of fixed income at Everbright Securities, believes that among many tools, the RRR reduction provides the longest liquidity period and the lowest cost, which can effectively alleviate the liquidity constraints in the process of currency creation, so the policy effect is quite obvious.

Cheng Jie, reporter of this group (Source: Beijing Youth Daily)