① In October, the MLF operation rate remained unchanged at 700 billion. The amount of MLF due in the month was 789 billion, the largest expiry volume since the beginning of the year. This means that a slightly reduced operation was implemented this month. ② The industry pointed out that the reduction in operation volume this month is not significant, indicating that new bank loans starting in October will recover in year-on-year growth.
Caifl News on October 25th (Reporter Cao Yunyi) The amount of MLF due this month was 789 billion, the largest ever since the beginning of the year. Today, the central bank slightly reduced the ongoing MLF operation, while the MLF operation rate remained unchanged this month as the MLF operation rate was significantly reduced by 30 basis points on September 25th.
Industry insiders told Caifl News reporters that the operation scale this month remains relatively high, with only a slight reduction, aiming to maintain the liquidity of the banking system in a reasonably abundant state. In addition to the recent clear arrangements for capital replenishment for major banks, these measures will support commercial banks in increasing their crediting efforts in the fourth quarter. It is expected that new bank loans will recover in year-on-year growth starting from October.
The central bank continues to slightly reduce the ongoing operations to maintain the reasonable and abundant liquidity of the banking system.
Today, the central bank carried out a 700 billion yuan Medium-term Lending Facility (MLF) operation, with a term of 1 year, a maximum bid rate of 2.30%, a minimum bid rate of 1.90%, and a winning bid rate of 2.00% unchanged. After the operation, the balance of the Medium-term Lending Facility was 6789 billion yuan. At the same time, the central bank conducted a 292.6 billion yuan 7-day reverse repo operation today, with a winning bid rate of 1.50%, consistent with previous levels, resulting in a net injection of 184.2 billion yuan today due to the maturity of 108.4 billion yuan 7-day reverse repo.
Wang Qing, Chief Macro Analyst of East Money Securities, told Caifl News reporters that the MLF operation rate remains unchanged in October. The main reason is that after the announcement of interest rate cuts by the central bank on September 24th, the MLF operation rate was significantly reduced by 30 basis points on September 25th. In other words, the MLF operation rate for October was pre-reduced, and has basically been reduced to the level near the corresponding interbank CD maturity yield. This is the main reason for the LPR quote reduction this month while the MLF operation rate remains stable.
Of note, there was a 789 billion yuan MLF maturity on October 16, the largest since the beginning of the year. Zhou Maohua, a macro researcher at China Everbright Bank's Financial Market Department, pointed out that the central bank's parity renewal of MLF this month meets expectations, but slightly exceeded expectations in terms of quantity. "Although there was a slight reduction in ongoing MLF this month, the 700 billion yuan scale slightly exceeded expectations. This is mainly due to the large amount of MLF due this month, the effectiveness of domestic countercyclical adjustment policies, the gradual improvement in economic recovery, and the increasing market demand for medium-term liquidity this month."
Wang Qing also believes that the operation scale this month remains relatively high, with only a slight reduction, aiming to maintain the liquidity of the banking system in a reasonably abundant state. In addition to the recent clear arrangements for capital replenishment for major banks, these measures will support commercial banks in increasing their crediting efforts in the fourth quarter. "Starting from October, new bank loans will recover in year-on-year growth. This is an essential driving force to boost economic growth momentum."
The likelihood of a reduction in MLF interest rates within the year is small.
Looking ahead, many experts believe that the MLF operation interest rate will remain stable within the year, but the central bank is also expected to flexibly adjust the quantity and price of MLF open market operations based on bank funding costs, market liquidity, and macroeconomic trends.
Citic Sec's chief economist Ming Ming expects that the operating mode of surplus in the open market on the 25th of each month and contraction in MLF will become the norm in the future. "Behind the central bank's way of shortening the extension and contraction, on the one hand, it is to gradually reduce the impact of MLF tools on the liquidity market, and on the other hand, it is to avoid excessive impact of MLF contraction on the liquidity market during the tax period and cross-month stages, and strengthen the guiding significance of reverse repo rates for market rates."
Wang Qing believes that looking ahead, the MLF operation interest rate will remain stable within the year. The main reason is that the rate cut in September was significant, and the fourth quarter will enter a period of observing the policy effects, with a lower likelihood of further rate cuts; at the same time, the current MLF operation interest rate has basically been reduced to a level near the corresponding interbank CD yield, further lowering the rate is also less necessary.
Zhou Maohua also stated that the MLF will return to its position as a medium-term liquidity injection tool, and the future trend of fund prices will be mainly influenced by the policy rate benchmark. However, it is also expected that the central bank will flexibly adjust the quantity and price of MLF open market operations based on bank funding costs, market liquidity, and macroeconomic trends.
In terms of operation volume, considering that the MLF maturity amounts in the two months prior to the year-end are as high as 1450 billion, coupled with the high peak period of government bond issuance in the fourth quarter, and the increased intensity of bank crediting, Wang Qing expects that the MLF will continue the situation of large-scale continuations observed in October.
