There is no interest rate cut after the negative growth of social integration, and the window of interest rate cut and RRR cut is expected to move back in the short term.
Economic Observer reporter Hu Yanming After the financial data fluctuated greatly in April, the market expected to cut interest rates in May. On May 15th, the People’s Bank of China (hereinafter referred to as "the central bank") operated the medium-term loan facility (MLF) with "equal parity", and the expectation of interest rate cut was temporarily frustrated.
According to the financial statistics published by the central bank in April and the data of social financing scale (hereinafter referred to as "social financing"), the Economic Observer found that RMB loans increased by 730 billion yuan in April, an increase of 11.2 billion yuan year-on-year; In April, the increase in social welfare was-198.7 billion yuan, compared with 1.22 trillion yuan in the same period last year.
Affected by social integration and other factors, the growth rate of money supply declined. In April, the narrow money (M1) decreased by 1.4% year-on-year, while the broad money (M2) increased by 7.2%, which was at a historical low. Ming Ming, chief economist of CITIC Securities, said that the decline in money supply was mainly due to the "squeezing water" of some non-compliant deposit products by supervision, and it was also related to the more diversified wealth management methods at present, which could not be interpreted unilaterally as the decline in financial support for the real economy; On the contrary, the supervision of deposits will help to activate funds and help finance to better support the recovery and development of the real economy.
Some scholars have also analyzed that more effective measures need to be taken to boost market confidence and expectations.
Some market investors believe that there was a negative growth in social financing in April, and the MLF interest rate should be lowered to stimulate financing. Zhang Xu, chief analyst of fixed income of Everbright Securities, said that the decline in the year-on-year growth rate of social financing was dragged down to some extent by the "squeezing water" of financial data. Because the squeezed out part of the "moisture" was also precipitated or occupied inefficiently in the early stage, it did not form a real support for the real economy. Therefore, the decline in financial data caused by "squeezing out water" does not mean that the strength of financial support entities is weakened, and there is no need to immediately use such a powerful policy tool as MLF to cut interest rates.
Social integration showed negative growth in April.
According to the data of the central bank, the cumulative increase in social integration in the first four months of 2024 was 12.73 trillion yuan, and the cumulative increase in social integration in the first quarter of 2024 was 12.93 trillion yuan. Therefore, the increase in social welfare in April was-198.7 billion yuan.
The increment of social financing refers to the amount of funds obtained by the real economy from the financial system in a certain period, including direct financing such as corporate bonds and government bonds, as well as indirect financing such as RMB loans and foreign currency loans.
From the perspective of social finance, government bonds, corporate bonds and undiscounted bank acceptance bills dragged down the data in April. In April, the net financing of government bonds decreased by 98.4 billion yuan, an increase of 553.2 billion yuan less than that in April 2023.
It is clearly believed that the scale of government bonds has declined because the issuance of national debt and local debt is slow. Considering the decline in land transfer fees, slow progress in issuing special bonds, limited local financial resources and other factors, the follow-up government bond financing will be accelerated, and it is expected that social integration will also be significantly boosted.
In April, the scale of corporate bond financing increased by 49.3 billion yuan, a year-on-year decrease of 244.7 billion yuan. Undiscounted acceptance bills decreased by 448.6 billion yuan, an increase of 314.1 billion yuan year-on-year, mainly due to the decline in the impulse of bank bills and the willingness of enterprises to invoice.
In terms of RMB loan data (also known as "credit data"), it is basically the same as that of the same period last year. April was a traditional credit abortion, and in April 2024, RMB loans were increased by about 730 billion yuan. However, from the perspective of credit structure, bill impulse phenomenon is obvious.
In April, corporate loans increased by 860 billion yuan. Among them, short-term loans decreased by 410 billion yuan, medium and long-term loans increased by 410 billion yuan, and bill financing increased by 838.1 billion yuan.
Wen Bin, chief economist of China Minsheng Bank, said that the demand for corporate loans weakened seasonally in April, but the supply of long-term loans to public companies remained stable, which remained an important force supporting new credit. Under the constraint of demand, in order to stabilize the pace of credit supply, some banks still have the demand of filling in the scale.
Residential loans (also known as "household loans") showed negative growth. Residents’ loans mainly include short-term loans such as consumer loans and business loans and medium-and long-term loans such as housing mortgage loans. In April, residents’ loans decreased by 516.6 billion yuan, a decrease of 275.5 billion yuan compared with April 2023. Among them, residents’ short-term loans and long-term loans decreased by 351.8 billion yuan and 166.6 billion yuan respectively.
Wang Yifeng, chief analyst of the financial industry of Everbright Securities, believes that with the heavy supply of government bonds, the growth rate of social financing is expected to gradually increase. In April, the growth rate of social financing hit a low of 8.3% in the year, which was mainly dragged down by some factors, such as delayed loan placement of reserve projects, delayed issuance of government bonds, pressure drop of stock bills, and dull financing of stock bonds.
The growth rate of money supply declined.
The slowdown in financing demand has slowed down the money supply. At the end of April, the balance of M2 was 301.19 trillion yuan, a year-on-year increase of 7.2%. The balance of M1 was 66.01 trillion yuan, down 1.4% year-on-year. M1 turned negative year-on-year, and M2 fell to a historical low year-on-year.
At present, China’s currency is divided into three levels: M0, M1 and M2. M0, which is often called "cash", is the most active and has the highest liquidity. M1, which is M0 plus unit demand deposit with slightly weaker liquidity; M2 is M1 plus unit time deposits and resident deposits with weaker liquidity. Therefore, M1 is called narrow money supply; M2 is the broad money supply.
Ming Ming said that the obvious decline in the growth rate of money supply was mainly due to the fact that since April, many deposit funds have been transferred to asset management products such as bank wealth management under the background of seasonal factors and strict supervision of manual interest payment. Judging from the changes of deposits in various departments, residents’ deposits decreased by about 650 billion yuan in April, corporate deposits decreased by about 1.7 trillion yuan, and government deposits decreased by about 400 billion yuan. The decrease in deposits of residents and enterprises confirms the phenomenon of "deposits moving", while the year-on-year decrease in fiscal deposits is mainly due to the slow issuance process of government bonds. Considering that the financing of government bonds has decreased by 550 billion yuan compared with the same period of last year, the side reflects that the current fiscal expenditure rhythm may have slowed down marginally.
At the end of April, the "scissors gap" between the growth rates of M2 and M1 widened. Wen Bin believes that the growth rate of M2 has slowed down, but the financial system has further improved its quality and efficiency in serving the real economy. The slowdown of money supply growth is affected by multiple factors. First, since the beginning of the year, the bond market has boosted the yield of asset management products such as wealth management, and bank deposits have been diverted to wealth management; Second, the regulatory authorities have stepped up the regulation of idle arbitrage of funds and manual interest payment by banks to squeeze out some inflated deposits and loans; The third is to optimize the accounting of financial added value, and the motivation of individual local governments to increase financial added value by expanding deposits and loans has obviously weakened. In the next few months, with the gradual improvement of financing demand in the real economy, the acceleration of financing by government departments and the gradual return of the bond market to fundamental logic, the growth rate of money supply will stabilize.
According to the financial data in April, the year-on-year growth rate of new residential loans, new social financing and M1 was "negative growth". Wang Yifeng analyzed that, first, insufficient effective demand is still the core issue, which exerts influence on "credit abortion" together with some influencing factors, the former is the "source" and the latter is the "flow"; Second, the accounting method of added value of the financial industry has changed, which has promoted the interests of all parties to slow down their demands for scale expansion; Third, the policy orientation strengthens "revitalizing the existing financial resources" and prevents "funds from depositing and idling". The financial data reading in April did have a "squeezing water" component; Fourth, the substantial impact of stopping "manual interest payment" may be the beginning rather than the end; Fifth, the contradiction between deposits and loans, money and credit, and the scissors difference in reading will probably continue.
May MLF’s "Equal Parity" sequel
On May 15th, 2024, the People’s Bank of China launched a 2 billion yuan open market reverse repurchase operation and a 125 billion yuan MLF operation. On the same day, a total of 2 billion yuan of reverse repurchase and 125 billion yuan of MLF expired, achieving complete liquidity hedging. In terms of price, the MLF operating interest rate remains unchanged at 2.5%, and the 7-day reverse repurchase operating interest rate remains unchanged at 1.8%.
MLF’s volume and price were both flat, and the shrinking operation was finished for the first time in March. Obviously, at the price level, the MLF and reverse repurchase operations all maintained the previous interest rate unchanged, while the market had failed to expect the interest rate cut in May based on the weak social credit data in April. On the quantitative level, this MLF continued to be 125 billion yuan, and the maturity scale on the same day was also 125 billion yuan, which was the first time since March this year to end the liquidity reduction operation.
Since May, the biggest concern of the market for liquidity lies in the concentrated supply shock of 1 trillion yuan of ultra-long-term special government bonds, and it is believed that the central bank may hedge it by lowering the RRR. Wen Bin analyzed that according to the latest arrangement of the Ministry of Finance for the issuance of general treasury bonds and ultra-long-term special treasury bonds on May 13, this year, the Ministry of Finance plans to issue three kinds of special treasury bonds of 20 years, 30 years and 50 years, respectively, 7 times, 12 times and 3 times, scattered from May to November. The smooth issuance and prolonged pace of this special national debt have weakened the concentrated impact on liquidity, and correspondingly, the necessity of the central bank’s current cooperation through RRR reduction has also declined.
Moreover, with the MLF interest rate unchanged in May, the LPR (loan market quotation rate) will remain "on hold" with a high probability this month.
Obviously, considering the internal and external policy conditions, MLF will cut interest rates or wait for a better opportunity. As of the first quarter of this year, the weighted average interest rate of general loans has dropped to a record low of 4.27%, which makes commercial banks face higher interest spread pressure and the demand for cost reduction in the financial system is still high; In April, the quality of credit data was average, and the repair of entity financing demand also needed further efforts of cost reduction tools. In the first quarter, the statement of "paying close attention to the changes of monetary policies of major overseas central banks" was put forward, which reflected the central bank’s increased attention to the operation of overseas monetary policies. Considering that there are still some uncertainties when the central banks of overseas developed economies such as the Federal Reserve cut interest rates, the timing of MLF’s interest rate cut may not be appropriate, and deposit interest rate cut may be more feasible.
For the future policy space, Wen Bin predicted that in order to promote a moderate rebound in prices and increase support for the real economy, the importance of aggregate tools remains, and monetary policy will adhere to the general tone of stability and easing; However, in order to stabilize the exchange rate and prevent funds from idling and arbitrage, it may be difficult to cash in the short term, but with the accumulation of conditions, it may still land during the year.