SCIO press conference on China's financial statistics in 2021
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E-mail China.org.cn, January 21, 2022
Economic Daily:
My question is – just yesterday, the PBC cut interest rates for reverse repo operations and MLF by 10 basis points, so I'm curious what this cut is for? And what will the effect be after lowering interest rates? Thank you.
Sun Guofeng:
The MLF and open market reverse repurchase are carried out by market-based bidding. The winning interest rate is generated by participating bidding institutions, and the interest rate level depends on various factors such as the liquidity of the banking system, financial institutions' demand for central bank funds and market expectations. Since the beginning of this year, the PBC has implemented the spirit of the Central Economic Work Conference, strengthened cross-cycle adjustment and increased liquidity delivery. On Jan. 17, the PBC launched a 700 billion yuan one-year MLF operation and conducted 100-billion-yuan seven-day open market reverse repo operations to increase liquidity supply, and to hedge against the impact of short-term factors such as the peak of the tax period in January, accelerated issuance of government bonds and cash injection before Spring Festival, in order to maintain reasonable and sufficient liquidity. So the PBC promoted the MLF and open market reverse repurchase bid rates, which both fell by 10 basis points. Specifically, the winning bid interest rate for the one-year MLF dropped from 2.95% to 2.85%, and the winning bid rate for the seven-day open market reverse repurchase operation dropped from 2.2% to 2.1%.
These recent cuts in interest rates for the MLF and open market reverse repo operations reflect actions by the monetary policy proactively pushing things forward, which is conducive to boosting market confidence. The operations would reduce corporate loan interest rates through the LPR conductivity, facilitate the decline in bond interest rates and promote comprehensive financing costs of enterprises to be stable with a decline. This will help stimulate the financing needs of market entities, enhance the stability of total credit growth, support the issuance of government bonds and local government bonds, stabilize the broader economy and maintain a balance between internal and external equilibrium. Thank you.
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