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Tencent News "First Line"

Author: Zhu Yuting Editor: Liu Peng

"The central bank had given the spoilers in advance. Everything was a textbook adjustment. We should give the central bank a thumbs up for the excellent communication beforehand."

On July 22, Guo Kai, executive director of the China Finance 40 Research Institute (CF40), interpreted the central bank's series of "interest rate cut combinations" that day.He told Tencent News "First Line": 10 basis points may not be enough, and the adjustment range must exceed market expectations, the interest rate level must be adjusted faster than the price change rate so that the real interest rate can be adjusted.

Therefore, he believes that there is still room for further interest rate cuts in the future.

When talking about the impact of interest rate cuts on interest rate spreads, he pointed out that "this is actually a question of degree." He believes that interest rate cuts do not necessarily lead to a narrowing of interest rate spreads. If inflation expectations rise and long-term interest rates rise, interest rate spreads will widen instead. However, if interest rate cuts are too slow, interest rate spreads will narrow.

On the morning of the same day, the People's Bank of China authorized the National Interbank Funding Center to announce that the loan market benchmark rate (LPR) on July 22 was: 1-year LPR 3.35%, 3.45% last month; 5-year and above LPR 3.85%, 3.95% last month.

Before announcing the LPR rate, the central bank issued a series of policies on the morning of July 22 to adjust the open market operations (OMO) and the medium-term lending facility (MLF):Reverse repoThe operation was adjusted to fixed interest rate and quantity bidding, and the operating interest rate was adjusted from the previous 1.80% to 1.70%;Long-term bondsMLF participating institutions in need can apply for a phased reduction or exemption of MLF collateral.

In the afternoon of the same day, the central bank updated the standing lending facility rate (SLF) table. From July 22, 2024, the overnight, 7-day and 1-month SLF rates will be adjusted to 2.55%, 2.70% and 3.05% respectively, all down 10 basis points.

Guo Kai believes that the LPR rate adjustment this time follows the short-term interest rate. The MLF rate has not changed this month, so the MLF rate is no longer a policy rate. In the future, the LPR rate adjustment will be more closely linked to the short-term interest rate. "By adjusting the short-term interest rate to affect the entire yield curve, from the perspective of the monetary policy framework, it is moving in a more market-oriented direction."

"Lowering interest rates is a natural choice," said Guo Kai. On the one hand, the economic data in the second quarter showed a weak performance, and on the other hand, the full-year economic growth target (GDP5%) must be achieved firmly. He said that the OMO interest rate was lowered by 10 basis points, the ultra-high reserve interest rate remained unchanged, and the SLF interest rate was lowered by 10 basis points, which means that the "interest rate corridor" will be narrowed by 10 basis points.

Previously, Pan Gongsheng, governor of the People's Bank of China, proposed at the Lujiazui Forum that "in response to the problem that some quoted interest rates deviate significantly from the actual interest rates for the best customers, we should focus on improving the quality of LPR quotations to more truly reflect the level of loan market interest rates."

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