2024-08-10
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On August 10, the People's Bank of China published five articles on the Monetary Policy Implementation Report for the Second Quarter of 2024. The article pointed out that in the next step, the People's Bank of China will always maintain the stability of monetary policy, further improve the market-oriented interest rate formation, regulation and transmission mechanism, enhance the authority of the policy interest rate, study the moderate narrowing of the interest rate corridor width, and send a clearer interest rate regulation target signal to the market. At the same time, continue to reform and improve the LPR, focus on improving the quality of LPR quotations, better play the role of the interest rate self-discipline mechanism, maintain a rational and orderly competitive order, smooth the interest rate transmission channel, and create a good monetary and financial environment for economic recovery and high-quality development. In addition, in the next stage, we must continue to play a good role in promoting the housing rental industry through supporting policies, improve the housing rental financial support system, and at the same time, fully mobilize the enthusiasm of market-oriented institutions, establish a sustainable business model through the investment of more social funds, support the destocking of existing commodity housing, and help promote the transformation and development of the real estate industry.
The deposit and loan interest rate formation mechanism is an important link in the transmission of monetary policy. After the reform and opening up, my country began to explore the marketization of interest rates. By the 1990s, the goals and paths of interest rate marketization reform were gradually clarified, and a sound deposit and loan interest rate formation mechanism determined by market supply and demand was established. The deposit and loan pricing authority of financial institutions continued to expand.Central BankBy using monetary policy tools to guide market interest rates, deposit and loan interest rates have basically achieved market-based pricing.
Historically, benchmark deposit and lending rates have been important monetary policy tools.Before 1978, my country implemented a highly centralized interest rate management system, and all types of deposit and loan interest rates were directly determined by the government. After the reform and opening up, the interest rate pricing authority was gradually decentralized. After the People's Bank of China exclusively exercised the functions of the central bank in 1984, it adjusted the benchmark interest rates of various types and terms of deposits and loans many times according to the macroeconomic situation and the needs of monetary policy regulation. At the same time, the People's Bank of China continued to deepen the market-oriented reform of interest rates and continuously expanded the floating range of interest rates. In 2004, the upper limit of loan interest rates and the lower limit of deposit interest rates of financial institutions were liberalized, until the loan interest rate control was liberalized in 2013, and the deposit interest rate control was liberalized in 2015. In this process, the central bank's interest rate regulation model has gradually transitioned to a market-oriented interest rate regulation mechanism. It no longer directly regulates deposit and loan interest rates, but uses monetary policy tools to indirectly guide market interest rates. Since October 2015, the benchmark deposit and loan interest rates have not been adjusted again, and in fact have gradually faded out.
At present, deposit interest rates are mainly adjusted independently by financial institutions, supplemented by industry self-discipline to ensure rational and orderly competition.In September 2013, while gradually relaxing interest rate controls, the People's Bank of China drew on the experience of interest rate marketization reform in mature markets and guided the establishment of a market interest rate pricing self-discipline mechanism, maintaining market competition order through industry self-discipline and ensuring the orderly advancement of interest rate marketization reform. Due to the high homogeneity of deposits, competition for deposits mainly depends on price. In order to avoid disorderly and vicious competition, the upper limit of bank deposit interest rates is still managed through industry self-discipline. Financial institutions can independently determine deposit interest rates within the self-discipline upper limit. In April 2022, the People's Bank of China guided the interest rate self-discipline mechanism to establish a deposit interest rate marketization adjustment mechanism to help financial institutions and the market better adapt to and get used to the deposit interest rate marketization adjustment. As of the end of July 2024, large banks have proactively lowered deposit interest rates five times.
The loan interest rate is determined independently by financial institutions and forms the Loan Market Reference Rate (LPR), which serves as the main pricing benchmark for floating-rate loans.In October 2013, my country created the LPR (then called the loan base rate) with reference to the practices of major economies such as the United States and Japan. However, the LPR has been changing in the same direction and magnitude as the loan benchmark rate for a long time, and cannot reflect changes in market interest rates in a timely manner. In order to dredge the interest rate transmission mechanism, the People's Bank of China deepened the LPR reform in August 2019. The new LPR is independently quoted by 20 quoting banks based on the loan interest rates of the best customers actually issued by the bank, and the average is taken and released once a month. At present, the loan interest rate actually implemented for customers is determined independently by financial institutions, among which floating rate loans mostly refer to the LPR agreed repricing rules. In terms of mortgage interest rates, when the People's Bank of China abolished the lower limit of loan interest rates in 2013, considering the overheated real estate market at that time, it temporarily retained the lower limit of personal mortgage interest rates and used it as a regulatory tool, which played an important role in maintaining the stable and healthy development of the real estate market. On May 17, 2024, in order to adapt to the new situation of major changes in the supply and demand relationship in my country's real estate market, the People's Bank of China abolished the national floor of personal housing loan interest rates. Most cities have abolished the floor of local first and second mortgage interest rates. Financial institutions can independently determine the personal housing loan interest rates for customers. So far, commercial loan interest rates have been market-oriented, and financial institutions can independently determine deposit and loan interest rates according to business needs and maintain a reasonable deposit and loan interest rate spread.
In the next step, the People's Bank of China will conscientiously implement the spirit of the Third Plenary Session of the 20th CPC Central Committee, based on serving the construction of a high-level socialist market economic system, continue to deepen the market-oriented reform of interest rates, break the unsuitable restrictive competition policies, urge and guide financial institutions to improve their market-oriented pricing capabilities, and better play the role of market mechanisms. At the same time, we will implement and improve the requirements of the macro-control system, improve the market-oriented interest rate control mechanism, better play the role of the market interest rate pricing self-discipline mechanism, standardize market competition behavior, and maintain market order.
The Third Plenary Session of the 20th CPC Central Committee proposed to further deepen reform in an all-round way, improve the macro-control system, and coordinate the reform of key areas such as finance and taxation. The People's Bank of China conscientiously implemented the spirit of the Third Plenary Session, integrated reform with regulation, and clarified the main policy interest rates of the central bank on the basis of the basic establishment of the interest rate formation, regulation and transmission mechanism, unblocked the monetary policy transmission channels, and continued to deepen the interest rate marketization reform.
Adjust the bidding method for open market operations and strengthen the main policy interest rate attributes of the open market 7-day repurchase operation rate.In recent years, open market operations have mainly been carried out through 7-dayReverse repoRegulate the supply and demand of liquidity. In the past, reverse repurchase operations adopted interest rate bidding, that is, given the operation quantity, the winning interest rate was determined by the primary dealers bidding at multiple prices. In theory, the change of the winning interest rate can better reflect the market liquidity situation. However, considering that the interest rate of the 7-day reverse repurchase operation in the open market has basically assumed the function of the main policy interest rate, it is not appropriate to change it frequently to disrupt the policy signal. Therefore, the central bank needs to communicate with the primary dealers in advance to find out the demand situation at different prices in order to determine the agreed operation quantity. With the development of financial markets and the increasing complexity of liquidity management, the communication cost is also increasing, and sometimes there will be a conflict between the agreed quantity and the stable price. In this context, changing the 7-day reverse repurchase operation to a fixed-rate quantity bidding and clearly indicating the operation interest rate will help enhance its policy interest rate status, improve operation efficiency, and stabilize market expectations.
Increase temporary positive and reverse repurchase operations in the afternoon to guide market interest rates to operate more smoothly around the policy interest rate center.Since 2016, the People's Bank of China has been conducting open market operations on a daily basis, which has better adapted to the needs of liquidity management. However, only one reverse repo operation is carried out every morning, and sometimes it still encounters the impact of unexpected intraday liquidity changes. The addition of temporary positive and reverse repo operations this time makes liquidity management more scientific and standardized, and the level of operational refinement is further improved. Among them, temporary reverse repo provides liquidity, and temporary reverse repo provides liquidity.Positive BuybackThe People's Bank of China is currently operating the liquidity recovery at an appropriate time. The combination of the two can achieve two-way liquidity adjustment and better smooth out the disturbance of liquidity caused by factors such as tax period and end-of-quarter assessment. At the same time, the interest rates of temporary positive and reverse repurchase operations are 20bp less and 50bp plus the 7-day reverse repurchase operation rate respectively. Without changing the existing interest rate corridor pattern, it not only maintains sufficient elasticity and flexibility, but also helps short-term interest rates to run in a relatively narrow range, and also enhances the role of the 7-day reverse repurchase operation rate as the main policy interest rate.
Improve the loan market benchmark rate (LPR) and streamline the interest rate transmission relationship from short-term to long-term.In the early stage of the LPR reform launched by the People's Bank of China in August 2019, the transmission mechanism from short-term policy interest rates to credit market interest rates was not sound enough. The LPR was mainly based on the medium-term policy interest rate at that time, namely the 1-year medium-term lending facility (MLF) rate, and was quoted after taking into account market factors such as funding costs and risk premiums. As the interest rate marketization reform continues to deepen,Commercial BanksThe pricing power has been further improved, the market-based interest rate formation mechanism has become more effective, and the reference role of the MLF interest rate on the LPR has declined. At the same time, the LPR quoted by some quoting banks is too high, which is far from the loan interest rate of their best customers, affecting the quotation quality to a certain extent. To this end, while clarifying the 7-day reverse repurchase operation rate as the main policy interest rate, the medium-term policy interest rate is gradually fading out. Taking July 2024 as an example, the MLF interest rate was not adjusted on the 15th of that month, and the 7-day reverse repurchase operation rate fell by 10 basis points on the 22nd. The LPR reported on the same day responded quickly and followed the adjustment, which also showed that the LPR quotation turned to more reference to the central bank's short-term policy interest rate, and the interest rate transmission relationship from short to long was gradually straightened out.
In general, the process of deepening interest rate marketization reform is gradual. In the next step, the People's Bank of China will always maintain the stability of monetary policy, further improve the market-oriented interest rate formation, regulation and transmission mechanism, enhance the authority of policy interest rates, study the appropriate narrowing of the interest rate corridor width, and send a clearer interest rate regulation target signal to the market. At the same time, continue to reform and improve the LPR, focus on improving the quality of LPR quotations, better play the role of the interest rate self-discipline mechanism, maintain a rational and orderly competition order, smooth the interest rate transmission channel, and create a good monetary and financial environment for economic recovery and high-quality development.
Column of Monetary Policy Implementation Report for the Second Quarter of 2024 | ③ Supporting the sustainable development of the housing rental industry
The 20th CPC National Congress proposed to speed up the establishment of a housing system with multiple suppliers, multiple channels of guarantee, and both rental and purchase. Cultivating and developing the housing rental market is not only an important part of building a new real estate development model, but also helps to promote the stable and healthy development of the real estate market. The People's Bank of China has continuously improved the housing rental financial support system, and jointly with the State Financial Supervision and Administration Bureau issued the "Opinions on Financial Support for the Development of the Housing Rental Market". On May 17, it jointly launched a real estate support policy package with various departments, and established a refinancing of affordable housing on the basis of the previous pilot, using market-oriented methods to support the overall digestion of existing real estate and the optimization of incremental housing.
Rent is the core variable affecting housing value.Assets have value because they bring future cash flow income. In theory, the value of housing is mainly affected by future rental discounts. The residential attributes of the house and the overall stability of the rental discount determine the floor price and foundation of the property. It will also be affected by expectations of future house price increases and decreases. In recent years, housing price expectations have changed significantly, and market interest rates and discount rates have also tended to decline. The impact of rental discounts on property value has received increasing attention. The "rent-to-sale ratio", that is, the ratio between rent and selling price, is a simplified indicator for measuring housing value. It has generally rebounded in recent years. Some market institutions have calculated that the current rent-to-sale ratio in first-tier cities is close to 2%, and in second- and third-tier cities it has risen to around 3%. However, this indicator is static and assumes that future rents will remain unchanged. In fact, for long-term held housing assets, the rental growth rate is also very important and will increase the return on rental housing. Since the epidemic, my country's rent growth has slowed down, but with the gradual recovery of the economy, rents are still expected to rise steadily in the long run. In the past decade, my countryCPIThe average annual increase in the rent sub-item exceeded 1.2%. If we assume that this rental growth rate can be maintained in the long term in the future, compared with the established purchase cost, the total yield of rental housing is expected to increase to more than 3% based on the static rental-to-sale ratio, which will be higher than the return rate of most assets.
The housing rental industry is an important direction for the future development of the real estate market.Under the new situation of profound changes in the supply and demand relationship of the real estate market, the scale of my country's stock of housing is already very large, and the housing rental industry is an important direction for the new development model of real estate in the future. From the demand side, in recent years, not only low-income groups, but also new citizens or young people who have just graduated and joined the workforce have also increased their demand for "good houses". According to market institutions, the population with rental demand in my country will exceed 200 million in the future, and the market potential is relatively large. From the supply side, in the past, it was mainly individuals who provided rental housing in my country. In recent years, with the recovery of the rental-to-sale ratio and the decline in financing and operating costs, the commercial sustainability of the housing rental industry has been enhanced, and more and more housing rental companies have entered the market. Large-scale and intensive operations will help provide better quality and stable rental housing services.
Activating existing stocks and destocking will help kick-start the housing rental industry.At present, my country's housing rental industry is still in its infancy, and the real estate market is also in a special period of adjustment. It is necessary to give full play to the joint efforts of finance and other policies to cultivate the housing rental industry by revitalizing existing stocks and destocking. Recently, the People's Bank of China has improved and launched affordable housing refinancing on the basis of the original rental housing loan support plan. Through market-oriented methods, it helps to achieve three major functions: First, it promotes the construction of a new real estate development model and supports the development of the housing rental industry. Enterprises purchase existing housing in batches to form group purchasing power, and the purchase price discount will further increase the investment return of the housing rental industry and the willingness of enterprises to participate. Second, it increases the supply of affordable housing. The acquired commercial housing can be used for affordable housing allocation or leasing, which will meet the demand for affordable housing while accelerating the revitalization of existing stocks and market destocking. Third, it forms a joint force with the guaranteed delivery housing and the "white list" mechanism to reduce the risk level of the real estate market. Real estate companies voluntarily participate, and the funds recovered must be used for guaranteed delivery building projects and other projects under construction, which will promote more projects to meet the "white list" conditions and improve the financial situation of real estate companies. As of the end of June, financial institutions have issued 24.7 billion yuan in rental housing loans, and the balance of guaranteed re-loans is 12.1 billion yuan. Subsequent loan issuance is expected to accelerate further. At the same time, local governments have also provided support policies in terms of finance, taxation, land, and supporting facilities, which can help reduce corporate costs and enhance the commercial sustainability of the housing rental industry.
In the future, as the real estate market pricing tends to be rational, the rental demand is further released, the rental-to-sale ratio continues to improve and rebound, and the operational capacity of housing rental companies continues to improve, the housing rental market has a basis for achieving commercial and sustainable development. In the next stage, we must continue to give full play to the role of supporting policies in promoting the housing rental industry, improve the housing rental financial support system, and at the same time, fully mobilize the enthusiasm of market-oriented institutions, establish a sustainable business model through the investment of more social funds, support the destocking of existing commodity housing, and help promote the transformation and development of the real estate industry.
Since the beginning of this year, the scale of various asset management products such as bank wealth management has grown rapidly, especially in the context of the hot bond market, some asset management products invested in the bond market have been sought after by investors. Under the net value management mechanism, the fluctuation of the net value of asset management products has also had an impact on investor behavior.
Net worthization helps to clarify the risks and returns of asset management products and promote the healthy development of the market.According to the contract, the risks and returns of asset management products should belong to investors. Before the new asset management regulations, many asset management products had "expected returns", which were usually consistent with the actual returns at maturity, which implied rigid redemption. In order to achieve a stable expected return, asset management product managers often adopt aggressive investment strategies to bear greater risks, or use the "profit" of products with better returns to make up for the "deficit" of loss-making products. Investors are not aware of the specific operations and do not care about them. The managers actually bear all the residual risks, but they are not included in the managers' own balance sheets, accumulating systemic financial risks. In April 2018, new asset management regulations were introduced, which clearly require financial institutions to implement net value management for asset management products. Under the net value mechanism, product managers disclose the net value of unit shares regularly or irregularly based on actual investment operations, and information on changes in product yields is more transparent. At the same time, investors subscribe and redeem products according to the net value, and the final investment income is determined by the net value of the product on the subscription date and the redemption date. The product manager and the productInvestment RisksSeparation, risk is borne by investors themselves, returns and risks are more equal, truly reflecting the essence of asset management of "sellers are responsible, buyers are responsible for themselves". From 2019 to 2023, the outstanding balance of net value bank wealth management products in my country will increase from approximately 10 trillion yuan to 26 trillion yuan, and the proportion will increase from 43% to 97%. Net value management has become a general trend.
Net value management places higher demands on both asset management product managers and investors.Under the net value mechanism, investors' returns fluctuate with changes in the actual value of the underlying assets, and there is no longer a rigid payment. For managers, they need to adapt to changes in asset prices in the financial market, formulate investment strategies scientifically, and provide appropriate products and high-quality services to various investors, including timely information disclosure and necessary consulting consultants. For investors, it is necessary to gradually change the traditional concept of over-reliance on stable expected returns, have a deeper understanding of the essential differences and risks between the expected rate of return of products and the final actual rate of return, and establish a more scientific and rational investment concept. However, in the early stages of net value management, investors' attention and sensitivity to changes in the net value of products increased, which easily led to short-term irrational transactions and the market "herd effect". After the new asset management regulations are officially implemented after the end of the transition period in 2022, investors have not yet fully adapted to the net value mechanism and are not fully prepared for the risk of losses in wealth management products. At that time, a lot of bank wealth management funds were invested in the bond market. As market interest rates rose,BondsAs prices fell, the net value of some products retreated or even "broke the net value", panic occurred in the market, and a large-scale redemption wave occurred. The price of underlying financial assets and the fluctuation of the net value of asset management products resonated again, and the downward spiral of the market was further amplified. Since the redemption wave in 2022, the market's tolerance for fluctuations in the net value of asset management products has declined. Some asset management products have adopted strategies to smooth the net value, and the underlying assets have become more complex, which has caused the fluctuation of the net value of asset management products to appear to have declined in the past two years. However, the current market and underlying assets are still complex and changeable, and the spiral cycle effect of the market still exists. The fluctuation of the net value of asset management products still needs to be carefully observed.
Investors should carefully evaluate the investment risks and returns of asset management products.Since the beginning of this year, my country's long-term bond interest rates have declined, and some asset management products have increased their allocation to long-term bonds. As bond prices rise in the short term, the net value of products has risen. Data shows that at the end of July, the averageAnnualized Rate of ReturnThe current three-year fixed deposit rate of banks is less than 2%, which attracts some investors to "move" their deposits to such products. The risks and returns of investment products still need to be weighed comprehensively. The first is how to view risks and returns. High returns correspond to high risks. In the environment of breaking rigid redemption, asset management products cannot have both "low risk" and "high return" in the long run. High returns must be pursued while taking high risks. The second is how to view the returns of underlying assets and asset management products. The returns of asset management products ultimately depend on the underlying assets. Since the beginning of this year, the annualized returns of some asset management products, especially bond-type wealth management products, have been significantly higher than the underlying assets, mainly achieved through leverage, and there is actually a large interest rate risk. When market interest rates rise in the future, the net value of related asset management products will also fall sharply. The third is how to view past returns and the returns that investors can achieve in the future. The annualized return rate dynamically released by wealth management products is the expected return rate at the current time point, which is the return rate for the next year linearly calculated based on the return rate of the past period. The actual return rate obtained by investors when they redeem products in the future is uncertain. The higher the net value now, it means investing at a higher price position, and the greater the risk of loss in the future. Finally, how to compare and choose different products. Investors should choose investment products based on their own risk tolerance. For example, the deposit yield may seem lower than the current average financial management yield, but it is a yield that depositors can definitely get; the yield of asset management products is constantly changing, and the investment risk is greater than that of deposits. Its relatively high yield is obtained by taking on the risk of price fluctuations.
In general, as the asset management industry further transforms towards net value, investors will gradually bear more risks of net value fluctuations. When financial institutions sell asset management products, it is necessary to provide good investor services, provide relevant consultation, fully inform investors of risks, guide investors to view net value fluctuations rationally, and promote the stable and healthy operation of the market.
Since the beginning of this year, the US inflation readings have dropped significantly, the economic outlook and the labor market have also changed, and the Federal Reserve's monetary policy is facing a shift. Recently, the US employment data has been lower than expected, and the Federal Reserve has gradually released a moderate monetary policy signal, and the market's expectations for the Federal Reserve to cut interest rates have increased.
Marginal changes in price and employment data create conditions for the Federal Reserve to cut interest rates.In June, the US CPI rose 3% year-on-year, the lowest level in nearly 12 months; the personal consumption expenditures (PCE) price index, which the Federal Reserve pays more attention to, rose 2.5% year-on-year, the lowest since March 2021. According to the data from the US Department of Labor, the US added 114,000 non-farm jobs in July, which was lower than market expectations, and the unemployment rate unexpectedly rose. The decline in inflationary pressure and weak employment data have exacerbated investors' concerns about the slowdown in the momentum of US economic growth, further strengthened the Fed's expectations of rate cuts, and financial markets have also fluctuated. Recently, gold futures have hit new highs, US Treasury yields have fallen sharply, and global stock markets have rebounded. In July, the Federal Reserve held an interest rate meeting and maintained the target range of the federal funds rate unchanged, but the press conference after the meeting emphasized the risks of balancing economic growth and inflation. Many market institutions inferred that the Fed's rate cut may be imminent.
The specific timing of the Fed's interest rate cut will also depend on future data changes.On the one hand, the resilience of the U.S. economy gives the Federal Reserve more time to observe.GDPThe annualized rate was 2.8% month-on-month, up from 1.4% in the first quarter; the wage growth rate remained at a historical high and was higher than the increase in consumer prices. On the other hand, the current geopolitical risks still exist. If the international supply chain is blocked and transportation costs rise again in the future, it is not ruled out that the rise in commodity prices will drive a rebound in US inflation.
The spillover effects of monetary policy shifts in major developed economies on emerging market economies deserve attention.Recently, the European Central Bank and the Bank of England have successively cut interest rates, and expectations for a rate cut by the Federal Reserve have increased. In the future, the policy interest rates of major developed economies may gradually decline from high levels, which may also have an impact on emerging market economies.
On the one hand, the global liquidity environment is improving, which is generally conducive to easing the external pressure on emerging market economies. At the macro level, the interest rate gap between developed economies and emerging market economies has gradually narrowed, and the pressure of capital outflow and currency depreciation on emerging market economies has eased. At the micro level, after the developed economies cut interest rates, the interest expenses of foreign currency financing in emerging economies will decrease accordingly, and the debt repayment pressure will also be alleviated.
On the other hand, international financial markets may see corresponding adjustments. From historical experience, when global liquidity faces an inflection point, international financial markets usually experience a certain degree of volatility, and changes in investor sentiment will also have an impact on the pricing of financial assets. Recently, major international financial markets have shown signs of varying degrees of volatility.
Since the beginning of this year, my country's economy has continued to recover and improve. Monetary policy has adhered to self-centeredness, taking into account both internal and external balance. The RMB exchange rate has remained basically stable at a reasonable and balanced level, cross-border capital flows have tended to balance, and domestic financial markets have remained resilient. In the next step, the People's Bank of China will closely follow the monetary policy trends of major developed economies, implement a prudent monetary policy, respond to external challenges reasonably and effectively, and create a good monetary and financial environment for the high-quality development of the real economy.
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