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Central bank voice: do not overissue money, do not use real estate as a short-term stimulus means

"At present, global economic growth is slowing down, inflation is running at a high level, geopolitical conflicts continue, the external environment is becoming more complex and severe, and the domestic economic recovery still needs a solid foundation." The central bank's latest assessment of the current domestic and international economic situation is more cautious than it was in the first quarter.

Based on this judgment, on the evening of August 10, the central bank released the "China's Monetary Policy Implementation Report for the second quarter of 2022" (hereinafter referred to as the "report"), which sets the tone for monetary policy, real estate finance policy, etc.

For the next stage of monetary policy arrangement, the central bank said, strengthen the implementation of prudent monetary policy, do a good job of cross-cyclical adjustment, take into account the short-term and long-term, economic growth and price stability, internal balance and external balance; We will not resort to excessive irrigation or excessive currency issuance.

For the next phase of real estate credit policy, the central bank stressed that firmly adhere to the "room not fry" positioning, insist on not to real estate as a means of short-term stimulus, insist on land price, stable prices, stable expectations, because with the city ShiCe foot with good policy toolkit, support rigidity and improvement of housing demand, the largest real estate financial prudent management system, We will promote the sound development and virtuous cycle of the real estate market.

In the opinion of several market participants, the central bank's statement was in line with the spirit of the Politburo meeting on July 28, with a stronger emphasis on 'stability' and a marked increase in focus on inflation and external balance, suggesting that there is not much room for further monetary policy.

Li Yujia, chief researcher of the Housing Policy Research Center of Guangdong Provincial Academy of Urban and Rural Planning, interpreted that whether it is to support rigid and reasonable improvement demand (for example, there is still room to cut the five-year LPR interest rate) or to properly implement the prudent management system of real estate finance, these are just "temporary measures" for short-term stability. To control the flow of capital to real estate is to refrain from "flooding irrigation" and issuing excessive money. On that basis, another significant rebound in property is unlikely.

We will continue to refrain from indiscriminate irrigation and excessive currency issuance

"The problem of high inflation is becoming the biggest challenge for most economies." The central bank first said in its report. Since the beginning of this year, China's CPI has continued to rise, combined with imported inflation pressure, making the market more worried about inflation, which may directly affect the use of monetary policy toolbox.

The consumer price index (CPI) rose 0.5% month-on-month in July from a flat reading in June, due to rising food prices such as pork and fresh vegetables and seasonal factors, according to the National Bureau of Statistics (NBS). Among them, food prices rose 3 percent from a 1.6 percent decline in June, affecting the CPI increase by about 0.53 percentage points.

The CPI rose 2.7% in July from a year earlier, the fastest pace since August 2020. The CPI rose 2.1 percent, 2.1 percent and 2.5 percent from April to June. The producer price index (PPI) fell significantly, down 1.3 percent month-on-month, and the PPI-CPI cut gap narrowed further.

The central bank expects that China's price inflation will remain within a reasonable range, the annual average CPI increase of around 3% is expected to be achieved, and PPI inflation will continue its downward trend this year. However, he also pointed out that in the medium to long term, the dividends of global integration and abundant labor supply that played an important role in reducing inflation in the first two decades of this century have been reversed. Combined with the rising costs of energy transformation and industrial chain restructuring, the stickiness and duration of this round of higher global inflation may be more severe than before.

"Maintaining currency stability is the primary responsibility of the central bank. Maintaining stable inflation is the meaning of macro and market stability, and it is also the environmental requirement for promoting sustained and stable economic growth." The central bank said in a column titled "Annual prices can still achieve the target, but structural inflationary pressures should be warned."

According to the common practice, the central bank will reveal the next stage of monetary policy thinking in the quarterly monetary policy implementation report. Compared with the first-quarter monetary policy report, the central bank continued to emphasize that it will intensify the implementation of prudent monetary policy and give full play to the dual functions of the aggregate and structure of monetary policy tools. The new formulation is "taking into account the short and long run, economic growth and price stability, internal and external equilibrium".

The central bank also stressed that it will not use excessive money to provide stronger and higher quality support for the real economy. We will maintain reasonable and sufficient liquidity and increase credit support for enterprises.

Wang Yunjin, a senior researcher at Zhixin Investment Research Institute, said that China's monetary policy should maintain strategic focus in the face of complex external situation and solid foundation for domestic economic recovery. On the one hand, we will use aggregate and structural tools to maintain reasonable and ample market liquidity, meet the financing needs of the real economy, and support infrastructure investment and key areas. On the other hand, we will not flood irrigation, overissue money or overdraw the future.

"In the future, the central bank will be more cautious in releasing liquidity, less likely to ease sharply, and attach more importance to providing high-quality financial services with stable aggregate volume and good structure. In the second half of 2022, the credit structure adjustment will be given more priority, with the proportion of manufacturing loans and inclusive small and micro loans gradually rising and maintaining a growth rate of over 20%. The proportion of real estate loans fell significantly." Wang Yunjin said.

Yang Chang, chief analyst of Zhongtai Securities, believes that the central bank's monetary policy may take a discretionary approach to inflation changes. If prices fall within the tolerance range, the policy focus will still fall on promoting the economy and employment repair level. If the tolerance range is breached, it may be a driving force for adjusting monetary policy.

Use the policy toolbox to your advantage

As for the real estate issue, the second quarter monetary policy implementation report basically continued the tone set by the Political Bureau of the CPC Central Committee meeting and the Central bank mid-year work conference at the end of July, emphasizing that "housing and housing should not be speculation" and "real estate should not be used as a means of short-term economic stimulus". As for the difficulties facing the real estate market, we will make full use of the policy toolbox to support the demand for rigid and improved housing, prudently implement the system of prudent management of real estate finance, and promote the sound development and virtuous cycle of the real estate market.

Under a series of policies and measures to stabilize the real estate in the early stage, the real estate market marginal recovery, but in July, the "stop supply and loan" event of some real estate led to the lack of confidence in the purchase of housing, real estate sales turned weak again, and the signs of shrinking the balance sheet of residents continued.

Li Yujia interpretation thinks, "because of the city with the ShiCe foot with good policy toolbox" mainly refers to two aspects, one is around in the implementation of differentiated credit policy, downpayments and mortgage rates, the central bank should not only support rigidity and improvement of housing demand, also want to promote the adjustment of credit structure optimization, improve the financial support the real economy effectively, and prevent the happening of the real estate risk; Second, when dealing with the outbreak of local real estate project risks and ensuring the delivery of buildings, we should also innovate the policy toolbox.

"Not using real estate as a short-term stimulus" means property-related credit may take some time to recover slowly, Wang said. "Prudently implement the prudential management system of real estate finance" means that the central bank is unlikely to relax the concentration management in the future, and controlling real estate financial risks may be more important.

When the central bank held a working meeting on the deployment of the second half of 2022 on August 1, it asked to maintain the stability of financing channels such as real estate credit and bonds, and accelerate the exploration of new real estate development models. None of that language was mentioned in the central bank's second-quarter monetary policy report, which placed more emphasis on "stability" and "risk prevention."

Compared with the first quarter monetary policy implementation report, which emphasized the "coordinated prevention and defusing of major financial risks", the second quarter monetary policy implementation report required "coordinated economic development and risk prevention, and maintained the overall stability of the financial system", which means that risk prevention and economic development need to be coordinated.

In view of the earlier risk events in some regions, the central bank proposed to "further deepen the function of early correction and risk disposal of deposit insurance, give play to the incentive and constraint role of differential risk rates, and improve the authority of early correction" to maintain the overall stability of the financial system.

The central bank stressed that it will continue to consolidate the main responsibility of financial institutions and their shareholders, the territorial responsibility of local governments and the supervision responsibility of financial management departments, and form a joint risk disposal force to ensure the effective implementation and implementation of disposal measures. We will improve the accountability mechanism for financial risks, strictly hold major financial risks to account, and effectively prevent moral risks. We will resolutely hold the bottom line of avoiding systemic financial risks.

The central bank also pointed out that it will strengthen the construction of financial rule of law, take the enactment of the financial stability Law and the establishment of the financial stability guarantee fund as an opportunity to further straighten out and improve the long-term mechanism for preventing, resolving and handling financial risks, and promote the marketization, rule of law and normalization of the handling mechanism.

"This means that regulators are working on long-term mechanisms, top-level designs and guidelines for handling property financial risks, including the bailout fund. "All resolution measures will be market-based and legalized to prevent moral hazard and hold financial institutions accountable for violations." 'As far as property risks are concerned, stabilizing the overall situation is the guiding principle,' Mr. Li said. 'Systemic risks must not occur.' At the same time, the central bank should form a coordination group with the banking and insurance Regulatory Commission and local governments to jointly promote risk disposal and guarantee the exchange of buildings; Under the principle of top-level design, we will innovate bailout policy tools and implement "one project at a time".

China minsheng bank's chief economist WenBin believes that to achieve stable prices, land prices, expectations, persistent relaxation, the future demand side is expected to local governments will also constantly introduced the stability property measures according to actual condition, including but not limited to, some cities "four limit" relax, "room to recognize and to recognize credit" principle adjustment support to improve sexual needs, such as mortgage rates fall further, To boost confidence and activate the market.
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