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The central bank’s “cutting interest rates”-concept, reason and impact on bulk commodities

The central bank’s “cutting interest rates”-concept, reason and impact on bulk commodities

  • Categories:Industry News
  • Release date:2020-07-01
  • 浏览次数:0

Summary descriptionOn June 30, it was reported on the Internet that the central bank decided to lower the re-lending and re-discount interest rates on July 1. The specific content is shown in the figure below:

The central bank’s “cutting interest rates”-concept, reason and impact on bulk commodities

摘要说明:On June 30, it was reported on the Internet that the central bank decided to lower the re-lending and re-discount interest rates on July 1. The specific content is shown in the figure below:

  • Categories:Industry News
  • Author:Zhuo Chuang Information
  • Origin:Zhuo Chuang Information
  • 发布日期:2020-07-01
  • 浏览次数:0
Information

On June 30, it was reported on the Internet that the central bank decided to lower the re-lending and re-discount interest rates on July 1. The specific content is shown in the figure below:

 

 

  This news comes from the WeChat official account of the People's Bank of China, but the strange thing is that the news was forwarded by the People's Bank of China from the Financial Times. The author did not retrieve the news from the official website of the People's Bank of China.

  Regardless of whether the news is accurate or not, just think about why the central bank will "cut interest rates". What is the meaning of "supporting agriculture" and "supporting small" as the qualifier of China's interest rate cut news?

  The purpose of "re-lending" and "re-discounting" is to hedge the impact of the epidemic

  Since the outbreak of the epidemic, the central bank has repeatedly introduced re-lending and rediscounting support policies, such as 1 trillion re-lending and rediscounting to support small and micro businesses, agriculture, rural areas, etc., as well as innovative monetary policy tools that directly reach the real economy. In addition, in mid-June, the National Standing Committee decided to promote the financial system to distribute 1.5 trillion yuan in reasonable profits to various enterprises throughout the year.

  How to realize reasonable concessions? Li Chao, a macro researcher at Zheshang, believes that “cutting loan interest rates is the core of the financial system’s “profit”. The Zheshang Securities Report believes that assuming the weighted average interest rate of loans at the end of the year can reach the historical low of 4.76% in Q1 of 2009, a total decrease throughout the year 68BP, this year, banks will give about 1.18 trillion yuan to entities through credit, accounting for 79% of 1.5 trillion. Therefore, Zheshang Securities believes that lowering loan interest rates is the core of the profit transfer. In addition, the reduction of bond interest rates has brought about 70 billion yuan in profits, and the deferred debt repayment for small and micro enterprise loans is about 230 billion yuan. The total of these three items has reached about 1.48 trillion.

  So what is refinancing? Why is the restriction word "supporting agriculture" and "supporting small" added to the policy?

  Refinancing refers to loans from the central bank to commercial banks. The People's Bank of China's loans to financial institutions can be divided into two types: credit loans and rediscounts according to different loan methods. Credit loans refer to loans issued by the People's Bank of China based on the financial institution's capital position and its credit guarantee. Credit loans refer to loans provided by the central bank to commercial banks, excluding financial institutions other than commercial banks. Therefore, in our country, refinance refers to the credit loan provided by the central bank to commercial banks. Generally speaking, the increase in central bank loans is one of the signs that "money roots" will be relaxed; conversely, it is one of the signs that "money roots" may be tightened. (MBA Think Tank)

  The addition of the restrictive words "supporting agriculture" and "supporting small" in the policy reflects the central bank's policy orientation of targeted "interest rate cut", structural precision drip irrigation, and serving the real economy. Judging from the recent operations of the central bank, the monetary policy is still in a stable state, which is closely related to the policy orientation proposed by the central bank in the second quarter regular meeting.

  Compared with the regular meeting in the first quarter of this year, this regular meeting has more adjustments to the expressions. For example, the expressions "macro leverage ratio is basically stable", "inflation control", "counter-cyclical adjustment" and other expressions have been deleted. New requirements such as “appropriate” and “sustainable development in a more prominent position”.

  Market analysis believes that taking into account the potential risks of a sharp increase in the macro leverage ratio and the “adhere to the appropriate aggregate policy” emphasized in the second quarter regular meeting, the demand for currency control over aggregate and risk prevention is increasing. In terms of monetary policy, there were several obvious changes in this meeting. This has also been interpreted by the market as the release of fine-tuning signals from macroeconomic policies, the consideration of risk prevention objectives has increased, the need for greater easing of monetary policy has decreased, and favorable policies in the short term may fail.

  Will the future direction of monetary policy shift to full easing?

  Judging from the country’s financial policy trends during the epidemic, it is unlikely that China’s currency and securities will move towards easing in an all-round way. In the future, structural precision drip irrigation and direct access to entities are the main policy orientations. We fully support the implementation of the “six stability” and “six stability”. Guarantee" work.

  Supporting agriculture and supporting small businesses are both the performance of structural precision drip irrigation. In addition, the direct entity solves the problem that more funds still flow to leading companies in the previous policy, while agriculture and small and micro enterprises that urgently need funds cannot enjoy it. To the dividends brought about by loose financial policies. Therefore, the main purpose of the structural tools of domestic monetary policy in the second half of the year is to repair the financing channel problems of small and medium-sized enterprises and continuously reduce their financing costs; the second point is to reduce the debt cost of small and medium-sized commercial banks and alleviate them. Operating pressure. The policy in the first half of the year has actually reflected the characteristics of this aspect. The two RRR cuts on April 15 and May 15 were specifically aimed at rural credit cooperatives, rural commercial banks, rural cooperative banks, village banks, and only operating in provincial administrative regions. For the city commercial banks, the RRR cut on March 13 implemented a targeted RRR cut for inclusive finance.

  Will the "interest rate cut" cause a sharp rebound in commodity prices?

  The rebound in commodity prices since April comes from the restoration of macro expectations, which is closely related to the proper control of the epidemic in China. The participation of financial capital will amplify the negative and good news in the market, and will cause prices to deviate from the fundamentals of supply and demand.

  In 2020, industrial products are facing the dual pressure of increased production capacity and declining demand. The emergence of the epidemic only aggravated the expected decline in the demand side of industrial products, which was the main reason for the decline in industrial product prices in March-April. Entering the second half of 2020, more industrial products will be put into production in a concentrated manner, and supply flexibility will increase, and there will be more output; while affected by the trade war, external demand will shrink and prices will fall again, which is a high probability event; The problem with agricultural products is that the supply side may shrink significantly due to abnormal weather, and locust plagues, excessive rain, etc. may cause the supply side to shrink, thus making the overall price of agricultural products strong; while for precious metals, due to the excessive global currency Developed as the best hedging tool, precious metal products still have medium and long-term investment value.

Article source: Zhuo Chuang Information

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