The central bank raised the policy interest rate. On the one hand, in order to curb the "risk-taking behavior" of domestic banks, at present, DR007 is stable above the 7-day OMO interest rate, and the demand of commercial banks for reverse repurchase by the central bank is at a high level. The increase of policy interest rate will help guide commercial banks to moderately control leverage. At present, the interest rate debt and capital cost in the secondary market are at a high level, and the impact of the policy interest rate increase is small, which has the basis of practical operation.

Moderate "interest rate increase"

China securities journal: What do you think of the Bank of China following the Federal Reserve in raising policy interest rates?

Sun Chao: The central bank raised the policy interest rate. On the one hand, in order to curb the "risk-taking behavior" of domestic banks, at present, DR007 is stable above the 7-day OMO interest rate, and the demand of commercial banks for reverse repurchase by the central bank is at a high level. The increase of policy interest rate will help guide commercial banks to moderately control leverage. At present, the interest rate debt and capital cost in the secondary market are at a high level, and the impact of the policy interest rate increase is small, which has the basis of practical operation.

On the other hand, based on the consideration of international monetary policy coordination, the central bank may keep the RMB exchange rate stable. In the post-crisis era, the linkage between global financial markets is increasing, and the spillover of monetary policy is becoming more and more obvious. The Federal Reserve predicts that it will continue to raise interest rates three times in 20 18. The increase of policy interest rate has the intention of stabilizing the spread between China and the United States, and also shows the market the coping tools to prevent the unilateral depreciation of the exchange rate from happening again.

Internally, the central bank's "interest rate hike" reflects more signal significance. The interest rate has only been raised by 5BP, which is half of that at the beginning of the year. At the same time, the central bank has increased the amount of MLF used for hedging, which shows that the central bank's stable and neutral monetary policy has maintained its strength.

Qin and Han dynasties: "the quantity increases greatly, but the price increases less", and the boots of "raising interest rates" landed. Recently, the market's expectations of raising interest rates are very different, so there is some confusion in logic. In just two weeks, from the expectation of no interest rate increase to the increase of deposit and loan interest rates, it entered the discussion scope. Judging from the final landing situation, MLF continued to do more than 654.38+000 billion yuan, and the price only rose slightly by 5bp. On the one hand, the boots fall to the ground, and the negative stage is exhausted. On the other hand, in the communication with the market, the People's Bank of China also conveyed a strong sense of care. We judge that this has both negative benefits and incremental benefits.

Monetary policy is undertaking some macro-prudential functions. Judging from the current fundamental trends and expectations, it is not enough to support the traditional interest rate hike. Combined with the monetary policy implementation report in the third quarter, PBOC is satisfied with the economy and inflation. In contrast, the current monetary policy faces a pair of prominent contradictions: the recent fluctuations in the capital market and the requirements of deleveraging and risk control in the medium and long term are actually policy objectives that need to be considered in the macro-prudential of the "new pillar". In a sense, judging from the operation and public expression of this "interest rate hike", monetary policy is trying to play a role in the process of landing and perfecting the new pillar.

China securities journal: The rate hike in the open market is smaller than last time. What message was sent?

Sun Chao: The increase in policy interest rate this time is only 5BP, which is lower than 10 BP at the beginning of the year, which sends a signal to the market that a stable and neutral monetary policy will remain strong. While raising the policy interest rate, the central bank increased the amount of MLF in the current month, which hedged the impact of "raising interest rates" and gave an explanation in time, showing an obvious attitude of caring for the market at a special time at the end of the year.

Although the amplitude is limited, the direction is still worthy of attention. The increase of policy interest rate means that the direction of deleveraging policy has not changed, which is consistent with the policy orientation behind the inadvisability of "overnight rolling" mentioned by the central bank in the third quarter monetary policy implementation report.

In addition, the compression of the increase in policy interest rate makes the impact of a single increase limited, which increases the flexibility of the policy, or means that the increase in policy interest rate will be included in the alternative library at some special time in the future.

Qin and Han Dynasties: While the policy interest rate was raised, the People's Bank of China also published news articles interviewed by the Financial Times. Obviously, I came prepared. I hope the market will not misunderstand. Judging from the central bank's own judgment, "going with the market", "following the Fed" and "regulating market expectations" are three key words.

Going with the market is both an objective requirement and a favorable condition. At present, the "retail price" of funds in the secondary market is obviously higher than the "wholesale price" in the primary market. PBOC believes that this will lead to market arbitrage and pricing distortion, and objectively there is a demand for going with the market; On the other hand, when the primary and secondary market prices deviate, raising the policy interest rate has little impact on the financial market, and it also creates space for the central bank to adjust the open market operating interest rate with the market.

Following the Fed's interest rate hike, the timing is more subtle. Judging from the rate hike of 5bp, it is obviously less than the Fed's rate hike of 25bp at a time. This has not taken into account that it did not follow up in June. In this sense, the signal meaning of following the interest rate hike is greater than the actual meaning. At a time when the spread between China and the United States is thick, the capital outflow is strictly controlled, and the central parity of RMB is strongly controlled, following the Fed to raise interest rates shows that it has not deliberately depressed the RMB interest rate and exchange rate, and it also shows that it has raised short-term policy interest rates as a weapon to deter RMB bears. Internally, make the interest rate hike more reasonable and avoid giving the market a signal of excessive tightening.

There are two points worthy of attention in regulating market expectations. The first is to avoid overly loose expectations. In the original words of the People's Bank of China, "it is conducive to the formation of reasonable interest rate expectations by market players, avoiding excessive leverage and expanding broad credit by financial institutions, and also playing a certain role in controlling macro-leverage", which is consistent with Director Sun Guofeng's speech to avoid giving financial institutions long-term low interest rate expectations. On the other hand, the People's Bank of China also attaches great importance to market expectations. From the beginning, the central bank clearly defined the interest rate hike as "a small upward trend", and specifically mentioned in the interpretation: "The upward trend of the central bank's reverse repurchase and MLF interest rates is less than market expectations", reflecting that the central bank clearly focuses on market expectations in its operation, trying to avoid the tight expectations brought by interest rate hikes to the market, and its intention to protect the market is obvious.

The increase of policy interest rate is hard to say.

China securities journal: What is your judgment on the future direction of monetary policy? Is it possible for the People's Bank of China to raise interest rates next year?

Sun Chao: In the future, monetary policy will remain stable and neutral, and the central bank will relax and conduct open market operations to maintain moderate liquidity and basic stability; MLF will remain an important tool for the central bank to put in the base currency.

The central bank has built a dual-pillar framework of monetary policy and macro-prudence, and "deleveraging" is expected to advance steadily in the future under the macro-prudential framework and new asset regulations, and it is unlikely that domestic factors will trigger the policy interest rate to continue to increase; At the same time, the economy will decline steadily in the coming year, inflation will fluctuate within the desirable range, and the increase in the benchmark interest rate of loans will directly impact the real economy, with a relatively low probability. However, overseas, the Fed's bitmap shows that it will raise interest rates three times next year, and the contraction will advance steadily; At the same time, the European Central Bank is also considering withdrawing from QE, and global liquidity tightening has gradually become a trend. Therefore, for the sake of monetary policy coordination, the central bank does not rule out raising the operating interest rates of open market operations and MLF again.

Qin and Han Dynasties: The possibility of the central bank adopting the combination of "targeted cuts to required reserve ratios+raising interest rates in the open market" was further improved. Looking forward to next year, the targeted RRR cut will land at the beginning of the year, and this small increase in policy interest rates is only the beginning. On the one hand, from the perspective of global central bank policy coordination, although China did not have obvious unconventional monetary policies such as quantitative easing and low interest rates after the subprime mortgage crisis, PBOC did avoid reducing RRR and raising interest rates before. On the one hand, when the over-reserve ratio is low, RRR has never been lowered, and the structural shortage of funds has become the norm; On the other hand, with the gradual normalization of overseas monetary policy, the current bond market interest rate has risen sharply, and the adjustment of open market operating interest rate is essentially lagging behind. From this perspective, China's monetary policy really needs to be "normalized".

Because the combination can achieve relatively good and reliable results in stabilizing the economy and capital market, alleviating the structural tension of funds, avoiding the expectation of low interest rates, and promoting financial deleveraging. Previously, the central bank's concern was mainly that RRR cut interest rates and raised interest rates sent too strong a signal. On the one hand, the targeted reduction of the deposit reserve ratio and the adjustment of the policy interest rate are relatively moderate. On the other hand, the central bank keeps sending signals of the strength of monetary policy, trying to keep the market from over-interpreting PBOC's intentions. Once tested in the future, the new combination has not caused the market to interpret monetary policy too loosely or too tightly, nor has it caused a big impact on the market and fundamentals. The possibility of this combination continuing next year is further improved.

It's not far from the high market interest rate.

China securities journal: How to judge the current interest rate trend?

Sun Chao: At present, the upward cycle of interest rates may have ended. In terms of time, it has been nearly 14 months since the market adjustment in June, 20 16. History shows that the duration of interest rate upward is gradually shortening. The upward cycle of interest rate lasted for 27 months in 2006-2008 and 24 months in 2009-20 1 1. Spatially, the upward cycle interest rate rose by about 150 BP in 2006-2008, nearly 140 BP in 2009-20, 2012013. In terms of time and space, this round of interest rate adjustment has been more adequate.

In addition, the upward interest rate has gradually affected the real economy. According to the annual report of CDB 20 16, the average yield of its interest-bearing assets is 3.94%, while the current yield of CDB active bonds of 10 is around 4.8%. CDB controls the holdings of long-term bonds in the market through replacement and suspension of issuance, which also proves that high interest rates have become an unbearable burden for policy banks.

Qin and Han Dynasties: We believe that the current interest rate trend is in the middle of the longest bear market in history, and the inflection point of long-term interest rate may have appeared this week, but it needs to be verified afterwards. In the next quarter 1-2, the downward trend of long-term interest rates will become clearer and clearer, and the national debt of 10 is expected to fall below 3.7%, and the national development bank of 10 is expected to fall to around 4.5%. But the long-term interest rate next year is higher than this year. It is estimated that the high point of 10 national debt will be above 4.3% next year, and the high point of 10 national opening will be around 5.5%. (This article is only a personal opinion and does not represent the position of the guest's unit. )

12 14, the central bank raised the open market operating interest rate by 5BP, keeping pace with the Fed's interest rate hike, but the adjustment range was smaller than before. Since the beginning of this year, overseas interest rates have been raised one after another, and global monetary policy has gradually entered a tightening cycle. Is it possible for the People's Bank of China to raise interest rates next year? Will raising interest rates push up market interest rates? How to judge the process of current interest rate trend? Around these topics of market concern, Sun Chao, deputy general manager of changjiang securities fixed income headquarters, and Qin Han, chief analyst of fixed income research of Guotai Junan Securities, were invited to discuss this.

It is the most important thing to stabilize our national conditions.