What signals does a 10 basis point decrease in open market operating interest rates release? People's Bank of China | System | Interest Rate
On June 13th, the People's Bank of China launched a 2 billion yuan reverse repurchase operation through interest rate bidding, and the winning bid interest rate decreased by 10 basis points compared to before. Experts say that this operation has released policy signals to strengthen countercyclical regulation and stabilize market expectations.
On the same day, the People's Bank of China announced that in order to maintain the reasonable and sufficient liquidity of the banking system, it carried out a 2 billion yuan reverse repurchase operation through interest rate bidding. The winning interest rate for this 7-day reverse repurchase operation is 1.90%, a decrease of 10 basis points compared to before.
Screenshot of the website of the People's Bank of China
"If the interest rate for medium-term lending facilitation continues to decrease on June 15th, it will help further reduce the cost of bank funds." Dong Ximiao, Chief Researcher of Zhaolian Finance, analyzed that China's economy is in the recovery stage after the impact of the epidemic. The decrease in interest rates for this reverse repurchase operation not only reflects the supply and demand of the capital market, but also releases policy signals to strengthen countercyclical regulation and stabilize market expectations, which is a precise and powerful manifestation of prudent monetary policy.
The changes in interest rates during monetary policy operations are closely related to the actual loan interest rates, and the transmission path of monetary policy is often achieved through the channel of "monetary policy interest rate loan market quoted interest rate loan interest rate".
The reporter found that the 7-day reverse repurchase operation saw a decrease in interest rates, marking the first adjustment since August 2022. On August 15, 2022, the winning bid rates for both MLF operations and open market reverse repurchase operations decreased by 10 basis points. On August 22 of the same year, the 1-year LPR and the 5-year and above LPR decreased by 5 and 15 basis points respectively compared to the previous period.
As a result, some market participants predict that the winning bid interest rate and LPR for MLF operations may be adjusted this month, further reducing the financing costs of the real economy and helping to stimulate effective financing demand.
In recent times, six major state-owned banks, including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, Construction Bank of China, Bank of Communications, and Postal Savings Bank of China, have voluntarily lowered some deposit listing rates based on their own business needs and changes in market supply and demand. The 5-year fixed deposit rate has been lowered to 2.5%. These measures are conducive to maintaining a reasonable interest rate spread between deposits and loans, enhancing banks' ability to supplement capital and sustain support for the real economy. The decrease in the bid interest rate for this open market reverse repurchase operation is in line with changes in market supply and demand and expectations, reflecting the role of market mechanisms. It is conducive to stabilizing the financing costs of operating entities and improving the sustainability of financial support for the real economy.
In addition, the cumulative year-on-year increase in the national consumer price index in the first five months of this year was 0.8%, which also provides space for a moderate decrease in open market operating interest rates. Dong Ximiao believes that in recent years, the adjustment of interest rates in China has followed a relatively stable "middle path" without significant fluctuations. The bid interest rate for this open market reverse repurchase operation has decreased by 10 basis points, with a moderate magnitude, which is conducive to balancing multiple goals such as maintaining price stability, financial stability, and supporting the real economy. It also takes into account internal and external balance, and maintains the basic stability of the RMB exchange rate at a reasonable equilibrium level.
"Interest rates are an important variable in the macroeconomy, and a decrease in the central bank's open market operating interest rates is beneficial for boosting market confidence." Wang Qing, Chief Macro Analyst at Orient Financial, believes that regardless of whether the Federal Reserve continues to raise interest rates in June and the second half of the year, the impact on China's monetary policy will be relatively limited. The decrease in policy interest rates this time will effectively boost market confidence and further enhance the macroeconomic recovery in the second half of the year.
During a recent survey in Shanghai, the President of the People's Bank of China, Yi Gang, stated that the bank will continue to implement a prudent monetary policy with precision and strength, strengthen countercyclical regulation, fully support the real economy, promote full employment, and maintain currency and financial stability. By comprehensively utilizing various monetary policy tools, maintaining reasonable and sufficient liquidity, maintaining a moderate and steady pace of monetary credit, promoting the stable and moderate reduction of comprehensive financing costs for the real economy, and maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level.
