SMM News: on the evening of Friday, May 17, the Central Bank released the "report on the implementation of China's Monetary Policy in the first quarter of 2019" (hereinafter referred to as the "report").
According to the "report," the world economic situation is still complex, there are many external uncertainties, the risks and challenges brought about by changes in China's long-term, short-term, internal and external factors are increasing, and there is still downward pressure on the domestic economy. The driving force of endogenous growth needs to be further strengthened. Next, the prudent monetary policy should be kept loose and moderate, the counter-cyclical adjustment should be implemented timely and appropriately, and the fine-tuning should be made in time according to the changes in economic growth and price situation. We should pay attention to maintaining the reasonable growth of money and credit. A triangular virtuous circle is formed between implementing a prudent monetary policy, enhancing the vitality of the micro main body and giving full play to the function of the capital market, so as to promote the virtuous circle of the national economy as a whole.
The monetary policy implementation report issued by the central bank on a regular basis is seen as a bellwether for the next phase of the central bank's monetary policy. It is worth noting that compared with the previous quarterly report, this report has a new statement on the outlook for the next phase of monetary policy, in particular the following two points worthy of attention:
On the one hand, the "report" emphasizes that monetary policy will properly implement counter-cyclical regulation in a timely and appropriate manner, re-mention the "good general gate of money supply", and add "to enhance the foresight, pertinence, and effectiveness of regulation and control, so as to accurately grasp the degree of regulation and control." Strengthen the guidance of expectations and stabilize market expectations.
By contrast, the fourth quarter of last year was "enhanced counter-cyclical adjustment". Many analysts pointed out that the macro-economy started well and better than expected in the first quarter of this year, the downward pressure on the economy has converged, and the future counter-cyclical adjustment will be adjusted more according to the changes in the internal and external situation.
On the other hand, the report has a lot of new statements on financial supply-side structural reform. According to the report, we will deepen financial supply-side structural reform, smooth the transmission mechanism of monetary policy, and strive to alleviate the problem of difficult and expensive financing for small, micro and private enterprises. We will carry out the evaluation of the guiding effect of the credit policy for small and micro enterprises, and strengthen the use of the evaluation results. Guide large commercial banks to sink the focus of financial services, change the concept of financial services, promote the development of private banks and community banks, guide local corporate financial institutions to return to their original sources, and focus on small and micro and other real economic and financial services.
Overall, the following changes in the report are noteworthy:
1. In recent years, M2 growth has approached nominal GDP growth, supporting high-quality development with moderate monetary growth, the report said. At present, the economic operation of our country is kept in a reasonable range, which is realized without carrying out "flood irrigation", and the results are not easy to come by. In the next stage, we should continue to implement a sound monetary policy and fine-tune it in a timely manner in the light of changes in economic growth and price situation.
2. The MPA assessment has been readjusted. The "report" revealed that since the first quarter of 2019, the loan assessment caliber of small and micro enterprises has been adjusted to be consistent with the target reduction of inclusive finance. We will adjust the relevant items of credit rhythm, urge financial institutions to grasp the "degree" of policy, avoid the ups and downs of credit, and further strengthen the encouragement and guidance of MPA to private, small and micro enterprises and other fields. We will appropriately increase the flexibility of the assessment of the proportion of interbank liabilities, promote financial institutions to replenish funds through multiple channels, and alleviate the problem that it is difficult for enterprises to raise funds.
3. The "report" points out that the current focus is to promote the "two tracks in one track" of the loan interest rate, and to further cultivate the market-oriented loan pricing mechanism. It is also considered that the current quotation mechanism of the loan base interest rate (LPR), "the gradual enhancement of market recognition and credibility, has become an important reference for the pricing of loan interest rates for financial institutions." It is also emphasized that in the process of promoting the integration of interest rates, it is necessary to keep the cost of the debt side of the bank basically stable.
4. It is considered that the price trend is uncertain. According to the report, overall, price levels will be affected by both supply and demand for a period of time in the future, and there will be some uncertainties and there will be a need for continuous monitoring of future changes.
5. With regard to the prediction of the risk of trade frictions, the report holds that trade frictions and policy uncertainties are still significant risks, and the uncertainties brought about by trade frictions and their impact on the global supply chain are gradually emerging in the future. Trade frictions and policy uncertainty may also have a negative impact on the global economy by driving up inflation, undermining household and business confidence and causing fluctuations in financial markets.
6. It is considered that the current real economic growth rate is similar to the potential growth rate (that is, the maximum sustainable growth rate that can be achieved without causing inflation). The report preliminarily estimates that China's potential economic growth rate has declined over the past decade, the current actual economic growth rate is similar to the potential growth rate, the output gap is close to zero, the supply and demand of the real economy is basically balanced, and the unemployment rate and inflation level remain stable as a whole. In the future, improving total factor productivity through technological progress and institutional mechanism reform will help to expand the space for potential economic growth.
It is not easy to realize the smooth operation of the economy by not carrying out "flood irrigation", and the results are not easy to come by.
One of the columns of the report is devoted to the adaptability of monetary growth. The "report" said that whether the prudent monetary policy is appropriate or not mainly depends on whether the monetary conditions match the requirements of maintaining steady economic growth and price stability. That is, the growth rate of broad money (M2) should match the nominal growth rate of (GDP).
The report holds that for a long period of time in the past, the growth rate of M2 was higher than that of nominal GDP, which was mainly related to the characteristics of China's economic structure and the development model of relying more on investment.
First, China's relatively high level of savings and indirect financing structure make China's demand for money larger than that of other economies.
Second, the process of housing monetization and financial deepening has also significantly increased the money demand of the whole society. Real estate basically does not create GDP, in the transaction link, but needs a lot of money to support it. Financial deepening will also make financial assets accumulate faster than non-financial assets. Macroscopically, M2 growth rate is higher than nominal GDP growth rate.
Third, for a long time in the past, China's economy was mainly driven by exports and investment. After the outbreak of the global financial crisis in 2008, external demand significantly weakened, and economic growth became more dependent on domestic demand such as investment. The superposition of all aspects of demand has led to a relatively high rate of monetary growth.
However, in the past two years, China's M2 has maintained single-digit growth, monetary policy has adhered to the basic direction of structural deleveraging, improved the speed of circulation of stock money and the efficiency of capital turnover, and played the role of stock currency while preventing risks. Accumulated the regulation and control experience of taking into account the moderation of the total amount, structural optimization and risk prevention.
"at present, China's economic operation is maintained within a reasonable range, which is achieved without carrying out 'flood flooding', and the results are not easy to come by." According to the report.
Looking forward to the next step of monetary policy, compared with the monetary policy report for the fourth quarter of last year, the "report" added that in the face of changes in the internal and external economic environment, macroeconomic regulation and control should be more targeted due to the situation, and the general gate of the money supply should be well handled. Do not engage in "flood irrigation", while maintaining reasonable and abundant liquidity, the growth rate of broad money M2 and the scale of social financing should match the nominal growth rate of gross domestic product (GDP).
The recent release of macroeconomic data for April fell short of market expectations, and a number of key indicators fell back, adding to the market's concern about the next step of economic growth. Therefore, many analysts believe that the counter-cyclical adjustment of macro policy will be intensified. Wang Tao, chief China economist at UBS, said: given the weakening economic data in April and the recent escalation of the trade war, we believe the macro policy tone is likely to shift to a more relaxed tone again. Future support policies are expected to include: the central bank to increase liquidity (including a further 100 basis points reduction in the year) and guide the market interest rate down; planned measures to support consumption may be accelerated; Continued support for private companies; increased infrastructure investment; and a relatively moderate policy tone for the property market.
Interest rate parallel frequent hairdryer, recognizing the important position of LPR
After the monetary policy implementation report for the fourth quarter of last year talked more about interest rate consolidation, the "report" dedicated a column to elaborate on interest rate consolidation. The analysis points out that alleviating the problem of difficult and expensive financing of small and micro and private enterprises is still the main goal of the current financial supply-side structural reform. Therefore, the integration of interest rates is expected to speed up the pace of landing.
The report said that at present, the banking system is reasonably liquid, money market interest rates are stable, and the real interest rate of loans is greatly affected by the risk premium. To deepen the market-oriented reform of interest rates, the current focus is on promoting the "two-track integration" of loan interest rates, which is conducive to enhancing market competition, encouraging financial institutions to price risks more accurately, and reducing risk premiums. And further dredge the transmission of money market interest rates to loan interest rates, and promote the reduction of financing costs for small and micro enterprises.
As for the specific path of "two tracks in one track", the "report" refers to the existing lending base interest rate (LPR) quotation mechanism, "the market recognition and credibility have been gradually enhanced, which has become an important reference for the pricing of loan interest rates for financial institutions." Li Chao, chief fixed income analyst at Huatai Securities (17.920,-0.64,-3.45%), said that solving the problem of difficult financing for private enterprises is still a structural pressure on current monetary policy. The merger of interest rates will accelerate, and the central bank is expected to cancel the benchmark lending rate and replace it with LPR (loan base rate), and then cut the policy rate by 10 to 15 basis points at a time to guide LPR down, thereby lowering the real financing rate for companies.
Zhang Ping, deputy director of the State Finance and Development Laboratory, held that while maintaining reasonable and abundant liquidity, in order to reduce the cost of capital for enterprises, it is necessary to further speed up the market-oriented reform of interest rates and break through the obstruction of "wide currency and tight credit." Solve the problem of lower market interest rates, but lending rates do not follow. On this basis, we will solve the interest rate transmission mechanism between the banking system and the banking system.
The "report" also said that in the next stage, the central bank will steadily promote the "two tracks in one track" and deepen the market-oriented reform of interest rates. In this process, we should continue to give full play to the role of market interest rate pricing self-discipline mechanism, maintain the order of deposit market competition, keep the cost of bank debt side basically stable, and create favorable conditions for reducing the financing cost of enterprises.
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