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On July 22, the People’s Bank of China (hereinafter referred to as “Central Bank”) issued an open market business announcement stating that in order to optimize the open market operation mechanism, from now on, the 7-day open marketReverse repoThe operation was adjusted to fixed interest rate and quantity bidding. At the same time, in order to further strengthen counter-cyclical regulation and increase financial supportReal EconomyEffective immediately, the open market 7-dayReverse repo operationsThe interest rate was adjusted from the previous 1.8% to 1.7%.

A person close to the central bank told the Securities Times that the adjustment of the 7-day reverse repurchase operation to a fixed interest rate and quantity bidding, which explicitly indicates the open market operation interest rate, is conducive to strengthening the policy attributes of the 7-day reverse repurchase rate. The 10 basis point reduction in the 7-day reverse repurchase operation interest rate is conducive to increasing financial support for the real economy, but it does not mean thatLong DebtThere is room for yields to fall.

Authoritative experts said that the policy interest rate cut is expected to be gradually transmitted to the real economy through the financial market, promoting the reduction of comprehensive financing costs, consolidating the upward trend of the economy, and breaking the negative cycle of the decline in long-term bond yields and weakening expectations. The central bank lowered the 7-day reverse repurchase operation rate this time, aiming to increase counter-cyclical regulation and smooth out short-term economic fluctuations; while the medium- and long-term bond yields reflect more long-term economic trends and should be evaluated from a cross-cycle perspective.

The 7-day reverse repo operation will adopt a fixed interest rate

From now on, the 7-day reverse repurchase operation in the open market will be adjusted to a fixed interest rate and quantity bidding. People close to the central bank told the Securities Times reporter that clearly indicating the interest rate for open market operations will help strengthen the policy attributes of the 7-day reverse repurchase rate.

The open market bidding methods include price bidding and quantity bidding. The winning bid price of the former is determined by the game between supply and demand, which is theoretically uncertain, while the price of the latter is given. In the past, the central bank's open market 7-day reverse repurchase operations adopted price bidding. Although the winning bid interest rate remained unchanged most of the time, it was still necessary to conduct operations every day to release clear interest rate signals. Considering that the interest rate of the open market 7-day reverse repurchase operation has basically assumed the function of the main policy interest rate, in order to enhance the authority of the policy interest rate and effectively stabilize market expectations, it is necessary to optimize the bidding method to a fixed interest rate, quantity bidding, and explicitly indicate the operating interest rate. This is also a reflection of a sound market-oriented interest rate regulation mechanism.

The operating rate was lowered by 10 basis points

Effective immediately, the interest rate for 7-day reverse repurchase operations in the open market will be adjusted from the previous 1.8% to 1.7%. A person close to the central bank told the Securities Times reporter that the 10 basis point reduction in the interest rate for 7-day reverse repurchase operations will help increase financial support for the real economy.

In addition to the adjustment of the bidding method, the interest rate of the 7-day reverse repurchase operation in the open market was also reduced from 1.8% to 1.7%, which is the first adjustment since August 2023. According to data released by the National Bureau of Statistics, my country'sGDPThe year-on-year growth rate was 4.7%, which was slower than that in the first quarter, especially due to the weak recovery of household consumption.Rate cuts, showing the determination of monetary policy to protect the economic recovery, and actively responding to the requirement of the Third Plenary Session of the 20th CPC Central Committee to "unswervingly achieve the annual economic and social development goals". Experts said that the reduction in policy interest rates is expected to be gradually transmitted to the real economy through the financial market, promote the reduction of comprehensive financing costs, consolidate the positive trend of economic recovery, and break the negative cycle of downward long-term bond yields and weakening expectations.

The decline in the 7-day reverse repo rate does not mean that the long-term bond yield has room to fall. The central bank lowered the 7-day reverse repo rate this time to increase counter-cyclical regulation and smooth out short-term economic fluctuations; while the medium- and long-term bond yields reflect more long-term economic trends and should be evaluated from a cross-cycle perspective.

Industry insiders analyzed that the continued decline in long-term bond interest rates this time has already included expectations for this rate cut, and even has a significant overshoot, which does not mean that it needs to follow the 7-day reverse repurchase operation rate and continue to fall. In fact, the current long-term bond interest rate is too low, and foreign media have generally paid attention to the potential risks; long-term bond interest rates are too low, which is also easy to trigger the self-realization of weak expectations, while the fundamentals of my country's economy are long-term positive. The central bank's interest rate cut this time will help support the economic recovery and boost medium- and long-term economic expectations, and will also help drive the recovery of long-term interest rates. It is expected that the central bank will also adopt a comprehensive policy in the future, borrow and sell government bonds when necessary, timely correct and block the accumulation of risks in the bond market, and maintain a normal upward-sloping yield curve. The central bank is determined and has measures to stabilize market expectations.