What signal?, The central bank has continuously lowered interest rates, with a 10 month interval between SLF | interest rate | central bank

Policy interest rates have been cut in succession! Following a 10 basis point cut in the 7-day reverse repo operation rate and the standing lending facility rate on June 13, the medium-term lending facility rate was also cut by 10 basis points on the 15th. Analysts expect the interest rate quoted in the loan market to be announced on the 20th to be adjusted.

Why is the central bank cutting interest rates intensively at this time? What kind of signal is transmitted? Can the mortgage be repaid less again?

On June 15th, the 7-day reverse repurchase operation rate and MLF rate.

Interest rate linkage reduction

According to the official website of the People's Bank of China on the morning of the 13th, the central bank launched a 2 billion yuan reverse repurchase operation through interest rate bidding, and the interest rate dropped to 1.9%. On the evening of the 13th, the central bank released the latest SLF interest rate table. After the SLF interest rate was lowered, the overnight variety was 2.75%, the 7-day variety was 2.90%, and the 1-month variety was 3.25%. On the 15th, the central bank launched a 237 billion yuan medium-term lending facility, and the MLF winning bid interest rate was reduced to 2.65%.

On June 13th, SLF interest rate table.

Why have multiple interest rates been adjusted? 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 for the central bank.

Behind the collective reduction, it reflects the "linkage" relationship behind multiple types of interest rates. Zhou Maohua, a macro researcher at the Financial Market Department of Everbright Bank, told the media that the central bank's recent interest rate cuts are carried out through the transmission mechanism of "reverse repurchase rate - upper limit interest rate of interest rate corridor - MLF rate - loan market quotation rate - loan interest rate".

From historical experience, 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 range as the OMO and SLF rates. Therefore, after the OMO adjustment on the 13th, the industry generally believes that the decrease in SLF and MLF interest rates is an expected adjustment.

Why is the interest rate cut after ten months happening at this time?

Prior to this round of adjustment, OMO, SLF, and MLF interest rates had remained stagnant for ten consecutive months, with the last change occurring on August 15, 2022.

Why cut interest rates after several months? Recently, during a research trip to Shanghai, the Governor of the People's Bank of China, Yi Gang, pointed out that the People's Bank of China will continue to implement a precise and robust monetary policy, strengthen countercyclical regulation, fully support the real economy, promote full employment, and maintain currency and financial stability.

In the current economic context, experts believe that the central bank's "three arrows" interest rate cut in this round is an action to strengthen countercyclical regulation, releasing positive signals 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 overall increase in credit and social financing remains stable, there is still room for improvement. In May, the increase in social financing scale was 1.56 trillion yuan, a year-on-year decrease of 1.31 trillion yuan; RMB loans increased by 1.36 trillion yuan, a year-on-year decrease of 541.8 billion yuan.

In addition, from the perspective of price levels, the national consumer price index in May decreased by 0.2% month on month and only increased by 0.2% year-on-year, which is lower than market expectations.

Dong Ximiao, Chief Researcher of Zhaolian, stated in an interview with China News Finance that although China's macroeconomic situation has recovered since the beginning of this year, the recovery trend is not yet stable enough, market confidence and expectations are still weak, and some small and medium-sized enterprises have not yet emerged from their difficulties.

Dong Ximiao mentioned that the central bank lowered the 7-day reverse repurchase operation interest rate on the 13th, conveying signs of policy interest rate loosening. Subsequently, the SLF and MLF interest rates also decreased by 10 basis points. The decrease in policy interest rates helps to further reduce the cost of bank funds.

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 capital inflows into the investment and consumption sectors, and stimulating economic recovery.

If LPR is lowered, can mortgage payments be reduced again?

With the reduction of MLF interest rates, LPR, as the next link in interest rate transmission, is also considered to have a high possibility of being lowered this month.

Dong Ximiao stated that this round of central bank interest rate adjustment, combined with multiple rounds of deposit rate cuts since September 2022 and a decrease in bank debt costs, is expected to end the nine consecutive months of "inaction" in the LPR this month, which may decrease by 5 to 10 basis points.

It is worth mentioning that if the LPR is lowered, the loan interest rates closely linked to the LPR are also expected to experience 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 rates of both existing and new mortgage loans will decrease, reducing the burden on housing consumers and helping to boost consumer consumption and investment.

Regarding the current economic situation, Dong Ximiao believes that the next step is to take targeted measures as soon as possible to stabilize the expectations of market entities, boost their confidence, and further boost consumption and investment.