Rate cut again!Near the Spring Festival, the central bank will restart the 14-day reverse repo, how will it affect the subsequent stock, bond and property markets

2022-05-20 0 By

After a month, the central bank again restarted the 14-day reverse repurchase operation.On January 24, the People’s Bank of China (PBOC) announced that in order to maintain stable liquidity before the Spring Festival, the CENTRAL bank launched a 14-day reverse repurchase operation of 150 billion yuan through interest rate bidding.The bid rate was 2.25%, down 10 basis points from 2.35% in the previous operation.After the seven-day reverse repurchase rate was cut by 10 basis points on Jan 17, the central bank also lowered the 14-day reverse repurchase rate by 10 basis points.Reporters from Beijing Business Daily noted that this operation is the first 14-day reverse repurchase by the Central Bank in 2022. In addition to price reduction, the operation scale also shows an incremental trend. Following the last operation, the central bank will increase the operation volume to 150 billion yuan this time, after hedging 100 billion yuan of reverse repurchase due on the day.A net daily liquidity injection of 50 billion yuan was achieved.In the view of the industry, the central bank cut the 14-day reverse repurchase rate, which is part of the “supporting” action of the previous interest rate cut. After cutting the medium-term lending Facility (MLF) and the 7-day reverse repurchase operation rate, the Central bank again lowered the standing Lending Facility (SLF) and the 14-day reverse repurchase operation rate and other policy rates.The main purpose is to protect the liquidity before the Spring Festival holiday, promote the interest rate center to move down, and better help the real economy to reduce costs.As su ning macroeconomic research center, deputy director of the financial research institute said cermet, the central bank to restart 14 days reverse repurchase operation, 10 basis points together seven days in reverse repurchase reducing interest rate, on the one hand, complied with the rhythm of the recent rate cut, and maintain the matching degree of short term interest rate, to avoid the bank loan behavior distortion of different short term capital,On the other hand, it also continued the style of cross-month liquidity adjustment.Beijing Business Daily reporters found that the central bank previously operated a regular amount of reverse repos around 10 billion yuan, since January 17 began to increase to 100 billion yuan level.Tao Jin believes that “the scale of operation is slightly larger than the previous period, mainly reflecting the care for cross-month and Spring Festival liquidity.”The main purpose of the central bank’s 14-day reverse repo is to protect liquidity before the Spring Festival holiday, keep the fund volume and price stable, and prevent deposit institutions from settling accounts before the Spring Festival holiday, which may cause the volatility of fund price to rise.Wang Hao, a macro analyst, also said that the 14-day reverse repurchase rate was cut by 10 basis points, consistent with the 1-year MLF, 7-day reverse repurchase and SLF rate cuts, which was fully in line with expectations.”The downward movement of the interest rate corridor means that the direct financing cost of the real economy sector starts to decline. After the Spring Festival holiday, the good news of the interest rate cut in the money market is expected to be transmitted to the credit end, driving the financing cost of the real economy further down and promoting the recovery of credit demand.””Wang hao said.How to affect the stock market, bond market, property market recent central bank interest rate cuts continue, following January 17 reduced the 1-day reverse repurchase, MLF interest rate of 10 basis points, followed by January 20 1-year LPR quotation reduced 10 basis points, 5-year LPR lowered 5 basis points.This was followed by another cut of 10 basis points in the SLF overnight, 7-day and one-month rates.Tao Jin told Beijing Business Daily that in January, the central bank completed the reduction of the upper limit and center of the interest rate corridor. Since the interest rate on excess reserves at the lower limit of the interest rate corridor is 0.35%, the policy interest rate system under the interest rate corridor has basically completed the systematic reduction.He further explained that continued loose liquidity and interest rate cuts are good for the bond market. On the one hand, the reduction of policy interest rates will be effectively transmitted to market interest rates under the deepening of interest rate liberalization. On the other hand, continued loose liquidity will increase the allocation pressure of bank assets and narrow credit spreads.In addition, the impact on the stock market is structural, with valuation sensitive growth and technology stocks benefiting more, but the overall performance of the stock market still depends on the coordination of other macro policies.In addition, in the housing market policy stability in the marginal easing of the situation, the impact of interest rate cuts on the housing market will be greater than earlier.On the one hand, the decline of long-term interest rate and mortgage interest rate stimulate the demand for house purchase; on the other hand, the decline of interest rate stimulates the increase of real estate leverage ratio and the increase of future inflation pressure, which also improves the function of real estate preservation.From the perspective of market impact, Wang hao also said that the most important significance of the overall reduction of the policy interest rate for the debt side lies in the reduction of the cost of capital, which in turn drives the recovery of the financing demand of the real economy and promotes the steady economic growth.First, it will help reduce the direct and indirect financing costs of the corporate sector.Secondly, it is of positive significance to prevent and control the hidden debt risk of local governments, defuse local risk events in real estate, and maintain the healthy, stable and sustainable development of the real estate industry.Finally, the overall reduction of the policy interest rate may reduce the valuation of the equity market and promote the healthy and stable development of the stock market.In terms of market fund performance, on January 24, overnight Shibor (Shanghai interbank offered rate) fell 12.8 basis points to 1.935 %, 7-day Shibor edged up 2 basis points to 2.132 %, 14-day Shibor rate rose 6.7 basis points to 2.435 %.Follow-up or there is still room for interest rate cuts the central bank has recently taken a series of measures to reduce concerns, and the direction of follow-up monetary policy, but also triggered heated discussion in the industry: monetary authorities do not rule out the possibility of further reduction of policy interest rates.At a press conference on 2021 financial statistics held by The State Council Information Office on Jan 18, the CENTRAL bank set the direction of subsequent monetary policies.We will keep the overall financing costs of enterprises stable and declining.We will improve the formation and transmission mechanism of market-based interest rates, give full play to the effectiveness of the reform of quoted interest rates in the loan market, stabilize the cost of banks’ debt, promote a steady decline in the overall financing cost of enterprises, and encourage the financial system to transfer benefits to the real economy.”Looking ahead, Tao Jin pointed out that from the beginning of this year to the first half of the year, under the policy of stable growth, “easy money, easy credit” will gradually appear.In the future, the policy focus may shift to wider credit, leading to aggregate and structural credit expansion, and there is room for a small rate cut to completely reverse expectations.At the same time, there is still downward pressure on the economy. As fiscal policy continues to exert more power, there is pressure on the financing rates of the real economy to rise, which requires the coordination of monetary policy.In the second half of the year, the downstream inflation rate may pick up under the effect of the recovery of the low base pig cycle, and even the possibility of breaking 3.Monetary policy may return to neutral as the need to guard against risks from monetary and credit easing increases.Wang hao said that before the Spring Festival holiday, monetary authorities are expected to continue to increase open market operations to maintain smooth operation of funds across the Spring Festival.After the Spring Festival holiday, open market operations will likely return to normal.The subsequent steady growth needs the support of monetary policy aggregate tools.”Previously, the two comprehensive RRR cuts provided sufficient liquidity support for government bond financing since the second half of 2021, which played a positive role in stabilizing growth and effectively played the role of cross-cycle adjustment of macro-control policies.At present, it is important to improve the production and operation expectations of the enterprise sector and promote the recovery of its credit demand.”Wang hao predicted that after the Spring Festival, the use of price-based monetary policy tools may become a priority choice to promote the steady decline of financing costs in the real economy. He did not rule out the possibility that monetary authorities could further cut policy interest rates, perhaps at the end of the first quarter or the beginning of the second quarter.Not only is the aggregate tool, the rate cut will also serve as a structural tool to promote China’s economic structural weakness.Beijing Business Daily reporter Liu Sihong