The policy interest rate remains unchanged for nine consecutive months.

On 15 May, the People’s Bank of China issued a circular stating that, in order to preserve the liquidity of the banking system, the medium-term lending facility (MLF) of $12.5 billion and the reverse buying operation of the 2 billion yuan renminbi open market fully met the needs of financial institutions and that the median interest rate was equal to the preceding period.

The operating interest rate of MLF remained unchanged, breaking the precipitation of the previous week’s market. Over the previous week, multiple macro-data showed that the economy was in a “coast recovery” posture and the two factors that led to a reduction in the interest rate for the deposit of the agreement, triggering market speculation on “prioritization”.

However, this small increase is due to the sound liquidity of interbank markets and to the fact that the current policy interest rate level is at a point of convergence without further decline.

MLF overtakes are consistent with market expectations

On 15 May, the People’s Bank of China issued a circular stating that, in order to preserve the liquidity of the banking system, the medium-term lending facility (MLF) of $12.5 billion and the reverse buying operation of the 2 billion yuan renminbi open market fully met the needs of financial institutions and that the median interest rate was equal to the preceding period.

In view of the expiration of this month’s $100 billion MLF, the Bank was overtaken by $25 billion in May.

Micro Fellows of the Ministry of Financial Markets of the Bank alone indicated that the Bank’s MLF had increased slightly, and the Central Bank had continued to implement a sound, slightly less biased policy, leading financial institutions to increase their support in key emerging areas, such as small micro-enterprises, manufacturing industries, to sustain economic recovery and to stabilize market expectations.

“The banking market has not been mobile since April, since the financial landscape has been generally loose and banks do not need large-scale capital injections. The current one-year rate of single-benefits and the 10-year rate of return on national debt are under policy interest rates, and recent market interest rates are lower and MLF is not required to operate large-scale increments `water’.” One bond dealer said.

The Governor of the Eastern Kimberly Chief Macrost considered MLF operations to be 125 billion in May, with an expiry of 10 billion. This means that this month the Bank carried out a net launch of 25 billion, which lasts for the first six consecutive months, with a small increase of two consecutive months.

“We are of the opinion that the process of retrofitting credits in the short term will continue, not excluding the possibility of increasing new credits in May and June to a lesser extent. The return of credit tempo means that bank demand for MLF operations is reduced and is a direct reason for the continued presence in May of MLF plus volume at `ground’.” Wang Yingfan said.

The operating interest rate of MLF in May remained unchanged and met market expectations. Wang indicated that the economy as a whole was continuing the faster rehabilitation process. In the context of the positive economic recovery momentum, the current need for a downward policy interest rate was not high, the main reason why the MLF operating interest rate remained unchanged in May. “We judge that the policy will be followed by the consolidation of the economic recovery base, inter alia, by supporting faster growth in capital investment, contributing to the recovery of consumption and increasing support for the real estate sector.” Wang Yingfan said.

A bank finance investment manager has also indicated to journalists that, at present, bank lending rates are not high and that further precipitation may increase the misalignment of funds.

LPR interest rates are expected to remain stable

The 1-year LPR interest rate is mainly derived from MLF interest rates and bank points. The five-year LPR decided on interest rates for housing loans. At present, LPR interest rates are expected to remain stable in the context of high bank “net interest” pressures and the constant interest rate of MLF.

In the view of Sakamoto, the MLF interest rate, which is a high LPR interest rate, remained stable; financial data for the period from January to April show that current market interest rates are at a reasonable level; and the net interest rate pressure of some banks has increased in recent years and, as a whole, the LPR threshold is still high in the short term.

Wang indicated that the net interest rate of commercial banks had fallen to 1.91 per cent in late 2022, at the lowest point ever since the record had been affected by the previous period, “to promote lower costs of integrated business financing and the cost of personal consumer credit”.

“Despite the recent downward adjustment in interest rates for some bank deposits, lower market interest rates and lower bank liability costs, the incentive for the offer to compress the LPR quotation in May remains inadequate.” Wang Yingfan said.

Wang is of the view that economic rehabilitation is leading to an increase in the demand for autonomous financing for various market players and that the need to stimulate market financing through the downward revision of the LPR offer for one year is low. With regard to the five-year LPR quotation, the pre-existing backlog of demand was centrally released, with an inter-sided return momentum in the first quarter of the building city; HF data show that the market sales rebounded in April and that future trends need further observation.

“In this context, we judge that the five-year LPR quotation will remain unchanged. However, under the city’s policy base, locals will continue to direct the newly released residential mortgage interest rate down through policy instruments such as the first home interest rate adjustment mechanism.” Wang Yingfan said.

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