Why did the central bank's operations exceed expectations?, Two "interest rate cuts" within three months | Market | Central Bank
On August 15th, the People's Bank of China announced a 10 basis point reduction in the 7-day reverse repurchase rate to 1.80%; The MLF interest rate was lowered by 15 basis points to 2.5%. This is the second "interest rate cut" by MLF in three months, exceeding market expectations.
Why did the central bank's operations exceed expectations? What impact will this "interest rate cut" have on the market? What is the expected adjustment space for subsequent monetary policy? Let's take a look at this issue Quick Q&A ↓
Q
Why did the central bank's operations exceed expectations?
A: In the eyes of industry insiders, the central bank has once again adjusted policy interest rates beyond market expectations, signaling that monetary policy will strengthen countercyclical regulation and fully support the real economy.
Wang Qing, Chief Macro Analyst at Orient Financial Holding, believes that the MLF operating rate in August was once again lowered by 0.15 percentage points, significantly exceeding market expectations, indicating a significant increase in the stability and growth of monetary policy. This asymmetric "interest rate cut" is related to the current policy focus on guiding the downward cost of financing for the real economy, while also suppressing the arbitrage of funds in the money market.
Wen Bin, Chief Economist of China Minsheng Bank, stated that the two "interest rate cuts" within three months are mainly due to the weak endogenous driving force for economic recovery and insufficient effective demand. It is urgent to coordinate policies such as interest rate cuts to strengthen countercyclical regulation. The recently released macro and financial data is weaker than expected, indicating a significant weakness in the demand for physical financing. It is necessary to reduce the risk of private sector balance sheet recession and decreased risk appetite through interest rate cuts.
Q
What impact will this "interest rate cut" have on the market?
A: Wen Bin believes that through this "interest rate cut", it can drive down the interest rates in the money market and bond market, especially in the medium and long-term credit market, which will help further reduce the financing costs of the real economy, achieve the goal of reducing costs for enterprises, promoting stable employment, assisting stable investment, and stimulating the internal driving force of private investment, as well as strengthening the coordination between fiscal and monetary policies, enhancing the sustainability of government debt, and creating a good financial environment for the stable recovery of the domestic economy in the future.
Experts generally believe that with the current MLF interest rate reduction, it is expected that the market quoted interest rates for loans with a maturity of 1 year and 5 years or more will also decrease in the future. Wang Qing stated that there is a high possibility of a larger reduction in LPR quotations for more than 5 years, which will drive the interest rates of newly issued residential mortgages to decline rapidly, release clearer signals of stabilizing the real estate market, and promote the real estate industry to achieve a soft landing as soon as possible. This is of great significance for stabilizing growth and preventing risks in the second half of the year.
Q
What is the expected adjustment space for subsequent monetary policy?
A: Experts point out that insufficient demand is currently a prominent issue, and there is a large room for adjustment in China's monetary policy. Reserve requirement reduction may still be one of the countercyclical adjustment tools that can be considered for use at this stage.
Zhou Maohua, a macro researcher in the financial market department of Everbright Bank, said that it is expected that the reserve ratio reduction and structural tools will still be in the toolbox in the third quarter, mainly because the central bank will release long-term, low-cost liquidity through the reserve ratio reduction and structural tools, further reduce the cost of bank debt, increase the ability to provide credit, and guide financial institutions to increase support for weak links in the real economy and key emerging areas.