Wednesday's Standing Meeting of the State Council of China raised the issue of "general reduction" more than expected, suggesting that policy still has a bottom line thinking and releases more long-term funds to reduce costs and boost entities even as downward economic pressures remain unabated. Analysts believe that China will release relaxed signals and the probability of landing will increase sharply in the short term. The specific way may be the combination of "general alignment + directional alignment".
In response to the meeting's reference to lowering the real interest rate, they said that price regulation may be delayed slightly. The central bank is expected to lower the medium-term lending facility (MLF) operating interest rate in mid-September, which will guide banks to lower the loan market quotation rate (LPR) and thus reduce the cost of real financing.
Li Qilin, managing director and chief economist of Liaison Securities, said that the reduction was aimed at releasing medium and long-term funds and reducing the cost of banks'liabilities, so as to have more room for reduction in asset-side quotation, i.e. LPR interest rate, and ultimately to achieve the goal of reducing the financing cost of the real economy.
"On the other hand, there is pressure of rising prices and the policy requirement of"no speculation in housing", so the central bank also wants to avoid flooding and maintain a relatively neutral and tight balance of short-end funds, so as to achieve the requirement of overall policy balance." He said.
Chinese Premier Li Keqiang chaired the executive meeting of the State Council on Wednesday. The meeting indicated that we should adhere to sound monetary policy and timely pre-adjust and fine-tune, implement measures to reduce real interest rates, timely use of universal and directional benchmarking tools, guide financial institutions to use more funds for inclusive finance, increase support for the real economy, and ensure that the economy operates in a reasonable range.
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