China to start cutting interest rates in 2022

In the context of stabilizing the economy, the People's Bank of China (People's Bank of China) simultaneously lowered the interest rates of long-term and short-term monetary policy tools on January 17. This is the first time in the past two years (until 2020) that the Chinese monetary authorities have lowered reverse repurchase and Medium Term Lending Facility (MLF) policy rate.

Last Friday (14th), Bloomberg showed that most market participants still expect the central bank's MLF policy rate will not be cut

The People's Bank of China announced on Monday (17th) that in order to maintain reasonable and sufficient liquidity in the banking system, it will carry out 700 billion yuan of medium-term lending facility (MLF) operations and 100 billion yuan of open market reverse repurchase operations. The reverse repo rate was cut by 10 basis points to 2.1%, and the MLF rate was cut by 10 basis points to 2.85%.

According to the data, the MLF expired this month at 500 billion yuan. Based on this, it is calculated that the PBOC will invest 200 billion yuan in this sequel.

After the interest rate cut, the spot of Chinese government bond futures both rose sharply. Among them, the 10-year government bond futures rose 0.34% at one point to a new high since June 2020. The yield rate of active government bonds of the same period once fell by more than 2 basis points, and then rebounded slightly; The one-year offshore renminbi forward point fell to 1129.12, an intraday low since June 2020.