The central bank has issued a heavyweight announcement! Macroeconomics, prices, real estate, and RMB exchange rates all have important tools for expressing opinions | exchange rate | prices
On August 17th, the People's Bank of China released the "2023 Q2 China Monetary Policy Implementation Report", which is worth paying attention to the macroeconomic situation, net interest margin of commercial banks, and RMB exchange rate.
Regarding the economic situation in our country, the report states that the current economy has returned to normal operation and high-quality development is being solidly promoted. It should also be noted that the international political and economic situation is complex and severe, and the cumulative effect of rapid interest rate hikes in developed economies continues to emerge. The momentum of global economic recovery has weakened, and the domestic economy is facing challenges such as insufficient demand, operational difficulties for some enterprises, and numerous risks and hidden dangers in key areas.
The report points out that in the next stage, the People's Bank of China will increase its macroeconomic policy regulation efforts. A prudent monetary policy needs to be precise and powerful, better leverage the dual functions of monetary policy tools in terms of quantity and structure, and firmly support the recovery and development of the real economy. Coordinate and coordinate financial support for the resolution of local debt risks, steadily promote the reform and insurance of small and medium-sized financial institutions, and maintain the bottom line of preventing systemic financial risks.
It is expected that CPI will gradually rebound from August and show a U-shaped trend throughout the year
The report summarizes the implementation of monetary policy in the second quarter of this year, stating that overall, monetary policy has remained forward-looking, effective, and sustainable since the beginning of this year, and has reasonably grasped the pace and intensity according to changes in the situation, creating a favorable monetary and financial environment for the economic recovery. Monetary credit maintained reasonable growth, credit structure continued to optimize, and loan interest rates significantly declined.
In terms of loan interest rates, the report pointed out that the weighted average interest rates for newly issued corporate loans and personal housing loans in June were 3.95% and 4.11%, respectively, which were 0.21 and 0.51 percentage points lower than the same period last year, and were at historical lows.
The report believes that the macroeconomic situation is expected to continue to improve and will be more closely matched with financial data in the future. Economic recovery is a process of wave like development and tortuous progress, and both post pandemic consumption and economic recovery require time. From the current situation, the economic recovery after the epidemic has entered a normal track. From a long-term perspective, the fundamentals of China's economy's long-term improvement have not changed. Patience and confidence are necessary for sustained and stable economic growth.
The report points out that prices are expected to bottom out and rebound. Overall, the price increase is likely to be at a low level within the year. Recently, pork prices have stabilized and rebounded, tourism travel prices have significantly increased, and domestic refined oil prices have also experienced four consecutive increases. It is expected that CPI will gradually rise from August and show a U-shaped trend throughout the year; The year-on-year PPI has bottomed out and rebounded in July, and the decline will continue to converge in the future. In the medium to long term, China's economy is generally balanced between supply and demand, with a stable monetary policy and stable inflation expectations among residents. There is no foundation for long-term deflation or inflation.
Commercial bank profits continue to grow, but net interest margin continues to narrow
The report points out that the asset size and total profit of commercial banks in China are gradually expanding, but the net interest margin and asset profit margin are showing a downward trend.
At the end of the first quarter of 2023, the total assets of commercial banks in China reached 337 trillion yuan, with an average annual growth rate of about 10.4% in the past five years. In the first quarter of 2023, the net profit of commercial banks was 667.9 billion yuan, a year-on-year increase of 1.3%, which was 6.1 percentage points lower than the same period last year; The net interest margin is 1.74%, and the asset profit margin is 0.81%, a year-on-year decrease of 0.23 and 0.08 percentage points respectively. The profitability of unit assets has decreased, and profit growth mainly relies on the expansion of asset size to "supplement price with quantity".
The report points out that the net profit of commercial banks in China is mainly used to supplement core tier 1 capital and distribute dividends to shareholders, and it once again acts on the real economy through the leverage of capital. Relatively speaking, domestic banks have few channels for capital replenishment, many difficulties, and slow progress, resulting in a significant capital gap. Therefore, while expanding channels for external capital supplementation, it is particularly important to maintain the ability of internal capital supplementation. Maintaining a certain level of profit growth is an important way for internal capital supplementation, which helps to enhance the ability of banks to support the real economy and prevent risks, and maintain the confidence of domestic and foreign investors in China's macroeconomy.
The report believes that China's current economic operation is facing many difficulties and challenges. Considering that financial and economic cycles are often not fully synchronized, bank credit risk exposure requires a period of time, and there should be some financial preparation and risk buffering. Allowing banks to maintain their stable operations in a reasonable manner can enhance their ability to continuously support the development of the real economy. Of course, the profitability of commercial banks will also fluctuate with economic cycles, and this should be viewed rationally without excessive interpretation.
The RMB exchange rate has not deviated from the fundamentals and will resolutely prevent the risk of exchange rate overshoot
The report points out that overall, the current RMB exchange rate has not deviated from the fundamentals, and the operation of the foreign exchange market is generally orderly. Since August, the US dollar index has strengthened, and the renminbi has depreciated against the US dollar. However, the China Foreign Exchange Trading Center's RMB exchange rate index, which measures the exchange rate of the renminbi against a basket of currencies, still rose. On August 11th, it was reported to be 97.47, up nearly 2% from its recent low.
The report points out that the exchange rate of the Chinese yuan reflects the comparative relationship between the yuan and other currencies, which is influenced by various internal and external factors, with high short-term uncertainty and uncertainty, but fundamentally depends on economic fundamentals in the long run. Currently, whether viewed from external or internal factors, the RMB exchange rate will not depreciate unilaterally, but will maintain two-way fluctuations.
From an external perspective, the Federal Reserve's interest rate hike is nearing its end, and the momentum for a significant rise in the US dollar is limited. From an internal perspective, the long-term fundamentals of China's economy have not changed. With the smooth circulation of the economy, the continuous overall improvement of China's economic operation will support the RMB exchange rate. China's current account surplus accounts for a moderate proportion of GDP at around 2%, and cross-border capital flows are self balanced. The balance of foreign exchange reserves remained stable above 3 trillion US dollars, with a slight increase compared to the previous month at the end of July, ranking first in the world.
The report points out that in the next stage, the People's Bank of China and the State Administration of Foreign Exchange will aim to maintain the basic stability of the RMB exchange rate at a reasonable and balanced level, leverage the advantages of a managed floating exchange rate system based on market supply and demand, referring to a basket of currencies for adjustment, comprehensively implement policies and stabilize expectations, make good use of various reserve control tools, regulate the supply and demand of the foreign exchange market, correct market pro cyclical and unilateral behavior, and resolutely prevent the risk of exchange rate overshoot.
We will increase macroeconomic policy regulation and maintain reasonable and sufficient liquidity
The report points out that in the next stage, the People's Bank of China will increase its macroeconomic policy regulation efforts. A prudent monetary policy needs to be precise and powerful, better leverage the dual functions of monetary policy tools in terms of quantity and structure, and firmly support the recovery and development of the real economy.
One is to maintain a moderate and steady pace in the total amount of monetary credit. Utilize multiple monetary policy tools comprehensively to maintain reasonable and sufficient liquidity. Pay close attention to changes in the monetary policy of major central banks, and maintain the liquidity of the banking system and the stable operation of money market interest rates.
The second is that structural monetary policy focuses on key areas, is reasonable and moderate, and has both progress and retreat. Maintain the stability of refinancing and rediscounting policies, and continue to provide inclusive and sustained financial support to agriculture, small and micro enterprises, and private enterprises. For areas where structural contradictions are still prominent, the implementation period can be extended, and new tools can be created if necessary.
The third is to build a system and mechanism that effectively supports the real economy through finance. Implement the "16 financial regulations" well, maintain stable and orderly real estate financing, and increase financial support for housing leasing, urban village renovation, and affordable housing construction. Solidly carry out various tasks to ensure the delivery of buildings, people's livelihoods, and stability, and promote the stable and healthy development of the real estate market.
The fourth is to deepen the market-oriented reform of interest rates and exchange rates, with me as the main focus and balancing internal and external factors. Strengthen expectation management, adhere to bottom line thinking, monitor and analyze cross-border fund flows, and prevent risks. If necessary, correct market pro cyclical and unilateral behavior, resolutely prevent the risk of exchange rate overshoot, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.
The fifth is to continuously deepen financial reform. Promote the expansion and increment of private enterprise bond financing support tools, and strengthen the bond market to support the real economy. Promote the internationalization of the RMB in an orderly manner, further expand the use of the RMB in cross-border trade and investment, deepen foreign monetary and financial cooperation, and develop the offshore RMB market.
Six is to persistently do a good job in risk prevention and resolution. Pay close attention to risks in key areas, coordinate financial support for local debt risk resolution, and steadily promote the reform and insurance of high-risk small and medium-sized financial institutions.
