To maintain the reasonable and sufficient liquidity of the banking system, the People's Bank of China launched a 106 billion yuan open market reverse repurchase operation and a 789 billion yuan medium-term lending facility (MLF) operation on October 16th. Among them, the scale of a single MLF operation is the largest since the beginning of this year, and it exceeds the MLF maturity of 500 billion yuan this month, achieving excess renewal. Experts say that the People's Bank of China's excessive renewal of mature MLFs, releasing incremental liquidity, helps to smooth out liquidity fluctuations, maintain reasonable and sufficient liquidity in the banking system, and provide strong support for the real economy. At the same time, create a suitable environment for the issuance of special refinancing bonds. Experts on smoothing out liquidity fluctuations suggest that it is necessary to continue excessive MLF trading, which helps smooth out the impact of various factors on liquidity, alleviate the cautious expectations of banking institutions, and continue to strengthen financial support for the real economy The excessive continuation of MLF clearly releases a positive signal of stable growth, aiming to guide financial institutions to continue to increase their support for weak links and key areas of the real economy, and to escort the economic recovery, "said Zhou Maohua, a macro researcher at the Financial Market Department of China Everbright Bank. Wen Bin, Chief Economist of Minsheng Bank, stated that October, as the beginning of the quarter, usually results in fiscal revenue exceeding expenditure, which will withdraw some funds from the market and put some pressure on liquidity. As the end of the month approaches, it is temporarily difficult for the funds to return to a loose pattern. Overmaturity of MLF can be renewed to release incremental liquidity, which can meet the reasonable funding needs of institutions. Excess renewal of mature MLF can also create a favorable market environment for the smooth issuance of local government special refinancing bonds, supporting the prevention of local debt risks. Wang Qing, Chief Macro Analyst of Dongfang Jincheng, said that after the large-scale issuance of special bonds in September, October also saw a peak period for the issuance of local government special refinancing bonds. This means that the financing scale of local government bonds in October may further increase, which is one of the important reasons for the large-scale oversupply of MLFs due this month. Considering the funding demand generated by the upcoming credit extension and government bond issuance, it is expected that the MLF due within the year will continue to be oversold, "said Wang Qing. The flat interest rate is in line with expectations, while the MLF operating rate for this month remains unchanged at 2.5%, while the expired MLF has received excess renewal. Experts say that the MLF operating interest rate, as one of the policy interest rates, has not changed this time and meets market expectations. As of now, the People's Bank of China has lowered interest rates twice this year, gradually improving economic fundamentals, and there is no need for further policy interest rate cuts in the short term. In Zhou Maohua's view, the current policy is gradually showing its effectiveness in pushing forward. For example, the overall financial data for August and September were relatively ideal, and the demand for physical financing has recovered. Therefore, policy tools have entered an observation period in the short term. From the perspective of exchange rate, Wen Bin stated that under the influence of domestic and foreign environments, the spot exchange rate of the Chinese yuan against the US dollar has been operating around 7.3 yuan since late September. In order to maintain exchange rate stability and prevent overshoot, maintaining a stable policy interest rate level is the best choice under the consideration of "focusing on internal factors and balancing internal and external factors". Regarding whether there is still room for policy interest rates to be lowered, Wang Qing believes that this will mainly depend on the macroeconomic and real estate market trends before the end of the year. Pre
Edit：Hou Wenzhe Responsible editor：WeiZe
Source：China Secruities Daily
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