The latest report from the central bank releases these heavyweight policy signals! Content tools related to monetary policy, RMB exchange rate, real estate, etc. | Monetary policy | Signal
Introduction: Rectify market pro cyclical and unilateral behavior, and resolutely prevent the risk of exchange rate overshoot.
On August 17th, the People's Bank of China released the "Report on the Implementation of China's Monetary Policy for the Second Quarter of 2023". The report points out that the macroeconomic situation is expected to continue to improve and will be more closely matched with financial data in the future. 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.
According to a journalist from First Financial, the report covers multiple heavyweight topics such as monetary policy, RMB exchange rate, real estate, and CPI.
Regarding monetary policy: precision and strength
The report points out that a prudent monetary policy should be precise and powerful, better leverage the dual functions of monetary policy tools in terms of both quantity and structure, and firmly support the recovery and development of the real economy.
The report also points out that we should closely monitor changes in the monetary policy of major central banks, strengthen analysis and monitoring of liquidity and financial market changes, flexibly carry out open market operations, and maintain the liquidity of the banking system and the stable operation of money market interest rates.
On August 15th, the central bank opened the market for incremental operations. On the day of reverse repurchase, the net investment was 19.8 billion yuan, and the MLF exceeded the renewal by 401 billion yuan, with a total net investment of 19.9 billion yuan. At the same time, the 7-day reverse repurchase operation rate was lowered by 10 basis points, and the one-year MLF operation rate was lowered by 15 basis points.
Wen Bin, Chief Economist of China Minsheng Bank, believes that the second reduction in policy interest rates after two months is a policy decision made by the central bank after referring to recent economic data, which has a certain degree of urgency. The current actual situation of economic recovery is lower than policy expectations, and it is necessary to continue to increase countercyclical adjustment.
In terms of structural monetary policy, tools such as technology innovation refinancing, equipment renewal and renovation special refinancing, and transportation and logistics special refinancing established in 2022 have been facing a gradual maturity since the beginning of this year. After these tools are withdrawn, the existing funds can be extended for a maximum of 3-5 years, achieving a maximum "gradual decline".
The report emphasizes that the People's Bank of China will continue to implement relevant tools in areas that still require or require sustained support, such as inclusive finance and green low-carbon development. Structural tools should further focus on key areas, be reasonable and moderate, and have both progress and retreat. They should be adjusted and optimized according to the needs of the economic and financial situation, continuously guiding financial institutions to increase their support for key areas and weak links. If necessary, new tools should be created according to the decisions and deployments of the Party Central Committee and the State Council to better serve high-quality economic development.
Regarding exchange rates: resolutely preventing the risk of overshoot
Recently, the exchange rate of the Chinese yuan against the US dollar has rapidly depreciated again, falling below the threshold of 7.3, causing market concerns. On the evening of the 17th, the offshore renminbi rose against the US dollar in the short term, briefly recovering from the 7.30 level; The onshore RMB recovered at the 7.28 mark.
The report states that the exchange rate of the Chinese yuan reflects the comparative relationship between the yuan and other currencies, and is influenced by various internal and external factors, with high short-term uncertainty and uncertainty. However, in the long run, it fundamentally depends on economic fundamentals.
The report points out that currently, regardless of 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.
Zhao Wei, Chief Economist of Guojin Securities, said that in the short term, the pressure of RMB depreciation is relatively controllable, so there is no need to worry too much. Under policy intensification, the future direction of economic fundamentals will be the key to the medium-term trend of the RMB exchange rate.
The report emphasizes 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.
Regarding prices: expected to bottom out and rebound
In July, CPI decreased by 0.3% year-on-year and increased by 0.2% month on month, slightly higher than market expectations. In terms of prices, the report suggests that prices are expected to bottom out and rebound.
In the first half of the year, the price increase in China fluctuated and decreased, with the year-on-year CPI dropping to 0 in June and briefly turning negative to -0.3% in July. The report believes that this is mainly a phased phenomenon caused by demand recovery delay and cardinality effects. Currently, China has not experienced deflation, and the macroeconomic situation is steadily recovering. Broad money is maintaining rapid growth, which is significantly different from typical deflation in history. There will be no risk of deflation in the second half of the year, and favorable factors for improving supply and demand conditions are still increasing. Household income growth continues to recover, consumer willingness steadily rebounds, and bulk consumption and service consumption are gradually recovering. Overall, the probability of price increases is likely to be at a low level within the year.
The report believes that in recent times, 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 starting 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.
Wen Bin stated that it is highly likely that both CPI and PPI growth rates will rebound in the future, and the bottom of the current price trend can be basically confirmed. "With a series of recent countercyclical 'policy combinations', including supporting the development of the private economy with 31 measures, stabilizing employment to strategic heights, adjusting and optimizing real estate policies, strengthening strategic emerging industries, and activating capital markets, gradually exerting targeted, combined, and synergistic effects, China's domestic demand for recovery or promotion of core inflation is gradually achieving a historical mean return."
Regarding real estate: timely adjustment and optimization of policies
Since July, the willingness of the residential sector to increase leverage has continued to decline, and the scale of early repayment of loans has continued to rise, leading to a continued weakening of new home transactions.
The previous Central Political Bureau meeting called for timely adjustment and optimization of real estate policies.
In terms of the real estate market, the report proposes to adapt to the new situation of significant changes in the supply and demand relationship in the real estate market, adjust and optimize real estate policies in a timely manner, and promote the stable and healthy development of the real estate market. This includes implementing the "16 financial regulations", maintaining stable and orderly real estate financing, and increasing financial support for housing leasing, urban village renovation, and affordable housing construction. We will continue to implement the guaranteed housing loan support plan until the end of May 2024, and steadily promote the implementation of the rental housing loan support plan in pilot cities. Make good use of the policy toolbox to better meet the rigid and improved housing needs of residents, and solidly carry out various tasks such as ensuring the delivery of buildings, people's livelihoods, and stability, in order to promote the stable and healthy development of the real estate market.
