What monetary policy information was released by multiple ministries at the press conference?

Core Views

On March 6, the third session of the 14th National People's Congress held a press conference, attended by the central bank, the Ministry of Finance, and the National Development and Reform Commission, where there was a lot of incremental information regarding monetary policy. Our interpretations are as follows:

① "The orientation of monetary policy is a description of the state; the state of China's monetary policy is supportive and relatively loose in terms of total volume."

Interpretation: This is essentially a reiteration of "moderately loose," indicating that the supportive stance of monetary policy has not changed. There seems to be satisfaction with the current situation, suggesting no urgency for further interest rate cuts.

② "This year, adjustments to the reserve requirement ratio and interest rates will be made at an opportune time based on domestic and international economic and financial conditions and the operation of financial markets."

Interpretation: This is consistent with the Q4 implementation report and the government work report, emphasizing "financial conditions" and "opportunistic timing," suggesting low urgency. We previously indicated that the short-term focus of monetary policy remains on stabilizing interest rate spreads, stabilizing exchange rates, and preventing risks from small and medium-sized banks investing in long-term bonds. Additionally, recent improvements in macro narratives due to new productive forces, high real estate activity, and proactive fiscal policies have further strengthened the central bank's "confidence."

③ "Currently, the average reserve requirement ratio for financial institutions is 6.6%, which still has room to decline."

Interpretation: Compared to interest rate cuts, the priority for reserve requirement ratio reductions is clearly higher, with more room to maneuver. Considering the recent tight balance in the funding environment, yesterday's government work report also stated that macro policies "should be implemented as early as possible," and a reserve requirement ratio cut is expected to be implemented in March-April. However, even with a reserve requirement ratio cut, the funding situation will still depend on the central bank's policy intentions. Currently, the balance of 7-day reverse repos and the monthly operation volume of outright reverse repos are at the trillion level, which does not bode well for the overall funding environment, but the funding structure is expected to improve, with the repo rate center likely to decline slightly.

④ "Research on lowering the interest rates of structural monetary policy tools."

Interpretation: This emphasizes lowering the interest rates of structural tools rather than policy rates or loan rates. It is expected that OMO and LPR will not be adjusted in the short term, and we need to wait for the fundamentals and external pressures in the second and third quarters to act as triggers. The bond market has also reacted slightly, with interest rate cut expectations further adjusted. Additionally, "optimizing the re-lending policy for technological innovation and technological transformation, expanding the re-lending scale to 800 billion to 1 trillion yuan," indicates that in terms of policy priorities, structural tools > total volume type > price type.

⑤ "Strengthen regulations on some unreasonable market behaviors that easily undermine the transmission of monetary policy."

Interpretation: What constitutes "unreasonable market behavior"? Manual interest supplementation, credit churn, and also includes banks' "scale complex." These behaviors have been concentrated and rectified since last year, and the subsequent direction is to continue standardizing. For bonds, the decline in interest rates on the liability side of banks is inherently favorable. However, its impact is not linear and is complex; for example, this year, large banks have seen weakened deposit sources and decreased stability in the funding environment, with an increase in interbank certificates of deposit issuance, which has instead led to a flattening of the curve.

⑥ "Innovatively launch a technology board in the bond market."

Interpretation: The central bank stated, "Support financial institutions, technology enterprises, private equity investment institutions, and other three types of entities to issue technology innovation bonds, enriching the product system of technology innovation bonds." According to data from the China Securities Regulatory Commission, as of February this year, a total of 1.2 trillion yuan has been issued since the pilot of technology innovation bonds, which has initially taken shape With subsequent infrastructure support, its scale is expected to continue expanding, and the bond market is also expected to welcome more varieties of opportunities.

⑦ Regarding long-term government bond yields, propose "effectively weakening and blocking risks"

Interpretation: The central bank stated, "In response to the rapid decline in long-term government bond yields in the short term, the People's Bank of China is observing and assessing the operation of the bond market from a macro-prudential perspective, promptly alerting market participants to risks, strengthening regulatory coordination, and effectively weakening and blocking the accumulation of risks." This indirectly confirms that the previous focus of monetary policy on risk prevention may indeed be related to bond market risks. Since the beginning of the year, the yield on ten-year government bonds has cumulatively risen over 10 basis points from its low. From the expression "effectively weakening and blocking risks," it can be seen that the central bank affirms the current regulatory effects. We believe that the 1.6% yield on ten-year government bonds is basically confirmed as a phase bottom, and the difficulty of breaking through this level again in the short term may increase significantly. Whether the current level is acceptable still needs to be confirmed, and the "put option" on long bonds has not yet been lifted. The market may need some space or triggers to gather buying strength, and we continue to recommend underweighting funds to build positions in a pyramid structure above 1.70% or 1.75%.

Authors of this article: Zhang Jiqiang, Wu Yuhang, Qiu Wenzhu, Ouyang Lin, Source: Huatai Securities Fixed Income Research Institute, Original Title: "What Monetary Policy Information Was Released at the Multi-Department Press Conference?"

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