According to the Financial Associated Press on November 25 (Reporter Gao Ping), the amount of MLF maturing this month is 1450 billion, reaching the highest peak of the year. Today, the central bank continues to reduce the amount of MLF, maintaining the MLF operation interest rate unchanged.

Industry insiders told Financial Associated Press reporters that despite the reduction in the amount of MLF operations this month, it does not mean that the central bank is reducing the liquidity injection into the mid-term market. Considering that the central bank has conducted a 500 billion buyout reverse repo operation in October, it is equivalent to releasing a certain scale of mid-term liquidity in advance. It is expected that the central bank will continue to inject medium- and long-term liquidity into the market as appropriate through methods such as lowering the reserve requirement ratio, buying and selling government bonds in the secondary market, conducting buyout reverse repo operations, and moderately continuing MLF operations.

MLF price reduction and continued operation. The previous 500 billion buyout reverse repo has already released a certain scale of mid-term liquidity in advance.

Today, the central bank conducted a 900 billion yuan MLF operation with a term of 1 year, the highest bidding interest rate is 2.30%, the lowest bidding interest rate is 1.90%, and the winning interest rate remains unchanged at 2.00%. After the operation, the balance of medium-term lending facilities is 6239 billion yuan. At the same time, the central bank conducted a 249.3 billion yuan 7-day reverse repo operation today, with a winning interest rate of 1.50%, which remains the same as before. Due to 172.6 billion yuan of 7-day reverse repos maturing today, a net injection of 76.7 billion yuan is achieved.

Regarding the unchanged MLF operation interest rate in November, Wang Qing, chief macro analyst of Dongfang Jincheng, told Financial Associated Press reporters that the main reason is the recent stability of policy interest rates and LPR quotes, as well as other market benchmark interest rates. After downplaying the policy interest rate, the MLF operation interest rate "follows the market," syncing with fluctuations in market interest rates.

Wang Qing further stated that the fundamental reason for the recent stability of policy interest rates, LPR quotes, market benchmark interest rates, and MLF operation interest rates is due to the introduction of a package of incremental policies and the increase in macroeconomic prosperity in October. The property market has significantly rebounded, and major economic indicators have generally improved, entering the observation period of policy effects. The focus at this stage is to transmit the effects of the 'forceful' policy interest rate cuts implemented in September and the significant reduction of LPR quotes in October to the real economy, guiding enterprises and residents to lower financing costs, continuously stimulating investment and consumer momentum, and pushing the real estate market to stabilize after the decline.

It is worth mentioning that the amount of MLF maturing this month is 1450 billion, achieving the highest peak of the year. Today, the continuation is 900 billion, equivalent to a reduction of 550 billion in this month's MLF. However, Wang Qing mentioned that considering that the central bank has initiated a 500 billion buyout reverse repo operation in October, it equates to the early release of a certain scale of mid-term liquidity. Wang Qing determines that the central bank will continue to carry out buyout reverse repos in the future to replace MLF, and the balance of MLF will continue to decline.

“Despite the reduction in MLF operations this month, it does not mean that the central bank is cutting back on the liquidity provision in the mid-term market. This is based on the debt restructuring arrangements, and from late November to December there will be a peak in local government bond issuance, requiring support from the central bank in terms of funds. The RRR cut at the end of September has already reflected this arrangement to some extent.” Wang Qing said.

Macro researcher Zhou Maohua from china everbright bank's financial market department also told the Financial Association reporter that although the MLF this month is reduced relative to the maturity amount, the overall increase in reverse repurchase operation volume maintains a net liquidity injection, keeping the market interest rates fluctuating near the policy rate, with the market liquidity remaining reasonably abundant. At the same time, the 900 billion MLF rollover scale is large, and the central bank is increasing the medium-term liquidity supply, which is beneficial for financial institutions to enhance credit support for weak economic areas, manufacturing, and other significant emerging fields.

CITIC SEC's chief economist Mingming stated that the MLF operation will land on November 25, achieving a net withdrawal of 550 billion yuan of medium and long-term funds when combined with the monthly maturity. On the same day, a net injection of 76.7 billion yuan in reverse repurchase took place, continuing the operation mode of compressing long and extending short funds. On one hand, the central bank continues to reduce the scale of MLF and decrease the existing amount to downplay its impact on the liquidity market, while on the other hand, short-term funds continue to be injected to counter cross-month funding pressures and strengthen the guiding role of reverse repurchase on market interest rates.

Industry insiders: The reduction of the MLF may lead to a quicker RRR cut, focusing on subsequent MLF rates potentially decreasing alongside the reverse repo.

Looking ahead, Wang Qing expects that the central bank will continue to inject medium and long-term liquidity into the market in a timely manner through RRR cuts, buying and selling government bonds in the secondary market, conducting fixed-term reverse repurchase operations, as well as properly rolling over the MLF to ensure the smooth issuance of local bonds. Among them, the likelihood of another 0.5 percentage points RRR cut before the end of the year is quite high.

Zhou Maohua also stated that the central bank's MLF continuation does not affect the expectations of an RRR cut at the end of the year. This is mainly because the impacts of RRR cuts and MLF operations are different; the central bank releases long-term, low-cost funds through RRR cuts, which supplements the market's long-term liquidity, helps stabilize banks' liability costs, optimizes the liability structure, and enhances banks' credit capability, allowing better responses to government bond supply and seasonal funding pressures at year-end, while also releasing domestic support for the real economy.

Mingming told the Financial Association reporter that with the concentrated supply of local bonds, the MLF reduction could lead to a quicker RRR cut. Since the launch of the six trillion yuan local debt restructuring plan three years ago, local bond issuance plans in various provinces and cities have been gradually implemented. From the perspective of payment, this week's local government bond supply amounts to as high as 720.1 billion yuan, the highest weekly issuance this year. Considering that commercial banks, as the main recipients of local bonds, face seasonal pressures of increased cash demand at year-end, coupled with the approaching liquidity assessments, there may be a high demand for medium and long-term liquidity; in the context of the central bank's continued net withdrawal environment for MLF, the possibility of the previously mentioned 0.25 to 0.5 percentage point RRR cut being implemented quickly cannot be ruled out.

“Looking towards the end of the year, the disturbances in the funding situation are mainly seasonal, with increased government bond issuance supply, but domestic fiscal and monetary policies continue to lean positively. The central bank is expected to comprehensively use RRR cuts, MLF, reverse repos, and other tools to ensure the stability of liquidity across the year-end,” Zhou Maohua added.

Mingming further stated that the outstanding MLF remains high, and under the goal of reducing costs, attention should be paid to the possibility of further lowering the reverse repo rate. As of November 25, the outstanding MLF still exceeds 6.2 trillion yuan. In September, following the reduction of the reverse repo rate, the MLF rate was lowered to a historic low of 2%, but considering the significant narrowing of the interest rate spread between deposits and loans, commercial banks are under increased operational pressure; the demand to lower financing costs for the real economy remains clear, and guiding the MLF rate down to alleviate the pressure on the liability side of commercial banks may still be necessary. Given that the recovery of financial data after the interest rate cuts in July and September has been slow, attention should be paid to the possibility of further reductions in the MLF rate alongside the reverse repo rate.