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lower the "first shot"!

on september 25, in order to maintain a reasonable level of liquidity in the banking system, the people's bank of china (hereinafter referred to as the "pboc") conducted a 300 billion yuan medium-term lending facility (mlf) operation with a term of one year, a maximum bid rate of 2.30%, a minimum bid rate of 1.90%, and a winning bid rate of 2.00%, down 0.3 percentage points from the previous month. after the operation, the balance of the medium-term lending facility was 687.8 billion yuan.

the mlf winning bid rate is the first downward market-based interest rate after people’s bank of china governor pan gongsheng announced at a state council information office press conference on september 24 that there would be arrangements to lower the reserve requirement ratio and interest rates in the near future.

authoritative experts in the industry pointed out that the mlf winning rate fell as expected, reflecting the guiding role of the central bank's reduction of the policy interest rate (the 7-day reverse repurchase operation rate in the open market) on the market-based interest rate. the decline in the mlf interest rate will help save banks' funding costs. through the transmission of internal pricing in banks, it is expected that lpr and deposit rates will also decline accordingly, which will continue to boost market confidence and support stable economic growth.

as 591 billion yuan of mlf matured that month, the net withdrawal of mlf in september was 291 billion yuan. authoritative experts in the industry pointed out that the reduction in the amount of mlf renewal is mainly to cooperate with the central bank's reduction in reserve requirements and maintain a reasonable level of liquidity.

mlf bidding price announced for the first time

securities times and china securities journal reporters noted that starting from july, the central bank has clearly stated in its announcement that it will adopt a fixed quantity and interest rate bidding method for mlf operations, and the winning interest rate will be flexibly determined based on the institutional bids. this month, the central bank announced the mlf bidding interest rate for the first time. the highest institutional bidding interest rate was 2.3% and the lowest was 1.9%, reflecting the differences in the medium- and long-term funding needs of different institutions. this is also in line with pan gongsheng's speech at the lujiazui forum in june to improve the transparency of monetary policy.

at the same time, the mlf is released separately from the open market operation, reflecting that the differentiated positioning of the tool in the future will be clearer. in the past, the results of mlf operations were released together with the reverse repurchase operations of the open market on the same day. this time, the mlf operation was "started from scratch" and released in advance under the column of re-loan-medium-term lending facility, which further reflects the difference with the 7-day reverse repurchase operation rate as a policy rate, and promotes the mlf to return to the positioning of a medium- and long-term liquidity supply tool.

since the beginning of this year, the central bank has taken substantial steps to improve the market-based interest rate regulation mechanism. on july 22, the central bank announced that the 7-day reverse repurchase operation in the open market would adopt a fixed interest rate and quantity bidding, further clarifying the policy interest rate. the linkage between the market interest rate and the 7-day reverse repurchase operation interest rate has been strengthened, and the policy interest rate color of the mlf interest rate has been significantly weakened. since august, the central bank has adjusted the monthly mlf renewal time to after the monthly lpr quotation is released.

wang qing, chief macro analyst at orient securities, believes that the current mlf interest rate is similar to the winning bid rate for treasury cash deposits, and has the characteristics of "following the market." "this also means that fluctuations in the mlf interest rate do not mean that the central bank is sending a signal of adjusting the policy interest rate."

mlf is not about price, but about quantity reduction and renewal

as 591 billion yuan of mlf matured that month, the net amount of mlf withdrawn in september was 291 billion yuan.

recently, pan gongsheng announced at a press conference held by the state council information office that the deposit reserve ratio will be lowered by 0.5 percentage points in the near future, and the main policy interest rate, that is, the 7-day reverse repurchase operation rate in the open market will be lowered from the current 1.7% to 1.5%. pan gongsheng also said that it is expected that this policy interest rate adjustment will lead to a reduction of the mlf interest rate by about 0.3 percentage points.

authoritative experts in the industry said that the reduction in the amount of mlf renewal is mainly due to the fact that the long-term liquidity gap in the banking system has narrowed significantly after the central bank announced that it would cut the reserve requirement ratio in the near future, and the necessity for the central bank to continue to renew the mlf in equal amounts has decreased. at the same time, pan gongsheng also revealed that the reserve requirement ratio may be reduced by another 0.25-0.5 percentage points before the end of the year, which is expected to reasonably hedge the mlf maturity in the fourth quarter and maintain a stable market funding situation.

at present, the existing mlf will still mature around the 15th of each month, which will affect the mid-month liquidity. wind data shows that the mlf maturity scale from october to mid-december this year is higher than that in september, at 789 billion yuan, 1.45 trillion yuan, and 1.45 trillion yuan respectively.

regarding the downward trend of the mlf winning rate, industry experts believe that this is the first downward trend in the market-based interest rate after pan gongsheng announced the recent arrangements for lowering the reserve requirement ratio and interest rates, which reflects the guiding role of the central bank's reduction of the policy interest rate (the 7-day reverse repurchase operation rate in the open market) on the market-based interest rate. the decline in the mlf interest rate will help save the cost of bank funds. through the transmission of internal pricing in banks, it is expected that the lpr and deposit interest rates will also decline, which will continue to boost market confidence and support stable economic growth.

wen bin, chief economist of china minsheng bank, pointed out that the routine postponement of mlf operations can not only better smooth out month-end fluctuations, but also further decouple from lpr. the effect of quantity will continue to manifest itself and the effect of price will gradually fade.