On December 9, Cai Lian She reported (Reporter Xia Shuyuan) that the latest results of the "C50 Wind Direction Index" from Cai Lian She showed that from the perspective of liquidity, the market expects the status of "not loosening normally, not tightening at the end of the month" to continue in December, and the central rate of funding rates is expected to stabilize. Among the 17 market institutions participating in the liquidity survey, 11 expect no obvious liquidity gap; 3 believe there may be a certain liquidity gap; and 3 determine there is no liquidity concern for the year. Regarding a reserve requirement ratio cut, considering the large amount of MLF maturing in December, market institutions expect an increased probability of a required reserve ratio cut in the near term. Looking ahead to next year, to reduce the actual financing costs of the real economy, industry insiders believe that interest rate cuts are still necessary, and the use of new tools such as government bond trading and reverse repos is also expected to increase.

"C50 Wind Index Survey" is initiated by Caixin Media and completed by various research institutions in the market. The results can reflect the market's comprehensive expectations of macroeconomic trends, monetary policies, and financial data. Nearly 20 institutions participated in the survey of this issue.

The central rate of funding in December is expected to stabilize, and the bond market may continue to fluctuate.

In retrospect, after the reserve requirement ratio cut and interest rate cut at the end of September, the central bank continued to inject liquidity using tools such as government bond trading and reverse repos, the central rate of funding gradually declined in line with the policy interest rates and remained basically stable. The overall liquidity in November was stable, but layering phenomena reappeared.

Entering December, how will the liquidity situation unfold? According to the survey by Cai Lian She, the market widely expects that the status of "not loosening normally, not tightening at the end of the month" will still continue in December, and cross-year funding is highly likely to remain stable. Among the 17 market institutions participating in the liquidity survey, 11 believe there is no obvious liquidity gap; 3 believe there may be a certain liquidity gap; and 3 believe there is no liquidity concern for the year.

Among them, the chief economist of citic sec, Mingming, estimates that there is basically no liquidity gap in December, but the misalignment of government bond supply and fiscal expenditure will disrupt the funding situation around the middle of the month.

Looking ahead to December, industry insiders believe that liquidity and policy are important factors affecting the bond market at the end of the year.

On one hand, under the debt resolution plan, December is expected to remain a small peak in supply for the year, but the central bank may use multiple tools to ensure liquidity remains stable. Coupled with potential 'early action' behavior from institutions at year-end, the central rate for DR007 is expected to hold steady, and the supply pressure in the bond market is relatively limited. On the other hand, as the central economic work conference is held at the end of the year, potential adjustments in expected differences may lead to continued fluctuations in the bond market.

In terms of open market operations, the maturity scale of MLF in December will still reach 1.45 trillion yuan. Analyst Li Yishuang from Cinda Securities expects that MLF will continue to net withdraw about 550 billion yuan.

We expect that the central bank will still inject about 600 billion yuan through buyout reverse repo. In addition, assuming that the central bank continues to net buy 200 billion yuan of government bonds and a net repayment of 80 billion yuan of PSL, while increasing the scale of reverse repo injection, we expect the excess reserve ratio in December to be about 2%, an increase of 0.7 percentage points compared to November," said Li Yishuang.

Recently, the probability of a timely reserve cut has increased, and there is still a necessity for interest rate cuts.

Recently, at the 2024 China Financial Association Academic Annual Conference, central bank governor Pan Gongsheng stated that next year the People's Bank of China will continue to maintain a supportive monetary policy stance and orientation, comprehensively use various monetary policy tools, strengthen counter-cyclical adjustments, ensure liquidity is reasonably ample, and reduce the comprehensive financing costs for enterprises and residents.

Additionally, at the October 2024 Financial Street Forum Annual Meeting, central bank governor Pan Gongsheng indicated: "It is expected that before the end of the year, depending on market liquidity conditions, we will choose an appropriate time to further lower the reserve requirement ratio by 0.25-0.5 percentage points."

A survey by Caixin shows that among the 17 participating market institutions, 14 believe there is a possibility of a reserve cut within the year, while 3 think that the necessity for a reserve cut has decreased.

Li Yishuang analyzes that the peak supply of government bonds will gradually pass after the first week of December, and the maturity of MLF is likely to be hedged by buyout reverse repos and other tools. The necessity for the central bank to cut the reserve requirement further decreases, and it is highly unlikely that there will be another interest rate cut in December.

According to Chen Li, the chief economist at Chuan Cai Securities, future policy interest rates will be based on goals such as stabilizing the real estate market, and in 2025, the central bank will maintain a supportive monetary policy stance with room for lowering the LPR quote.

In his view, the LPR for five years and above is an important reference for mortgage rates, and its reduction can lower borrowers' monthly payments, stimulating demand and trading activity in the real estate market. Additionally, as a pricing benchmark for medium to long-term loans for enterprises and institutions, the decline in the LPR for five years and above can also stimulate financing demand from enterprises and institutions, promoting sustained economic growth.

In the opinion of Wang Qing, chief macro analyst at Dongfang Jincheng, the People's Bank of China will continue to inject medium and long-term liquidity into the market timely through means such as lowering the reserve requirement ratio, buying and selling government bonds, and appropriately renewing MLF, to facilitate the smooth issuance of local government bonds. Among them, there is a high possibility of another reduction in the reserve requirement ratio by 0.5 percentage points before the end of the year.

Xiao Yu, chief fixed income analyst at Zhongtai Securities, stated that considering the large amount of MLF maturing in December, there remains a possibility of a reserve requirement ratio cut within the year to offset liquidity gaps in December and across year-end, even after the peak of government bond issuance has passed. However, even if the central bank does not cut the reserve requirement ratio, there are still sufficient means to replenish liquidity.

Looking ahead to next year's monetary policy, Zhang Liyun, director of the Financial Market Research Center at China Minsheng Bank Research Institute, analyzed that due to the increasing importance of stabilizing domestic demand and continued fiscal support, under the influence of multiple factors, monetary policy needs to be continuously enhanced, while also maintaining a supportive monetary policy stance.

Zhang Liyun indicated that to create a suitable liquidity environment, there is still some space for lowering the reserve requirement ratio. Meanwhile, to reduce the actual financing costs of the real economy, cutting interest rates remains necessary. The use of new tools such as government bond trading and reverse repos initiated by the central bank is also expected to increase.