"At present, global economic growth is slowing down, inflation is running at a high level, geopolitical conflicts are continuing, the external environment is more complicated and severe, and the foundation of domestic economic recovery needs to be stable." This is the latest judgment of the central bank on the current domestic and international economic situation, and it is more cautious than the judgment made in the first quarter.

Based on this judgment, on the evening of August 10, the central bank issued the Report on the Implementation of Monetary Policy in China in the Second Quarter of 2022 (hereinafter referred to as the Report), which set the tone for monetary policy and real estate financial policy.

For the next stage of monetary policy arrangements, the central bank said that it is necessary to strengthen the implementation of prudent monetary policy, do a good job of cross-cycle adjustment, and take into account short-term and long-term, economic growth and price stability, internal equilibrium and external equilibrium; Insist on not engaging in "flood irrigation" and not over-issuing money.

For the next stage of the real estate credit policy, the central bank stressed that it is necessary to firmly adhere to the orientation of "housing without speculation", persist in not using real estate as a short-term means to stimulate the economy, persist in stabilizing land prices, housing prices and expectations, make full use of the policy toolbox, support rigid and improved housing demand, and steadily implement the prudent management system of real estate finance to promote the healthy development and virtuous circle of the real estate market.

A number of market participants interviewed said that this statement of the central bank was in line with the spirit of the the Political Bureau of the Communist Party of China (CPC) Central Committee meeting on July 28th, with more emphasis on "stability" and a marked increase in attention to inflation and external balance, which meant that there was not much room for future monetary policy.

Li, chief researcher of the Housing Policy Research Center of Guangdong Urban and Rural Planning Institute, explained that whether it is to support rigid and reasonable improvement demand (such as the five-year interest rate still has room for downward adjustment) or to steadily implement the prudent management system of real estate finance, these are only short-term stable "expedient measures". Do not engage in "flood irrigation", do not exceed the currency, that is, control the flow of funds to real estate. Based on this, real estate is unlikely to usher in a new round of obvious rebound.

Insist on not flooding and not spamming money.

"High inflation is becoming the biggest challenge for most economies." The central bank first proposed in the report. Since the beginning of this year, China's CPI has continued to rise, and the pressure of imported inflation has increased the market's concerns about inflation, which may directly affect the use of the monetary policy toolbox.

According to the data of the National Bureau of Statistics, in July, due to the rising prices of pork, fresh vegetables and other foods and seasonal factors, the consumer price index (CPI) changed from flat in June to 0.5%. Among them, the price of food changed from a decrease of 1.6% in June to an increase of 3%, which affected the increase of CPI by about 0.53 percentage points.

In July, CPI rose by 2.7% year-on-year, the highest growth rate since August 2020. From April to June this year, the year-on-year increase of CPI was 2. 1%, 2. 1% and 2.5% respectively. The ex-factory price index (PPI) of industrial producers dropped significantly, with a month-on-month decrease of 1.3%, and the "PPI-CPI" scissors gap further narrowed.

The central bank predicts that China's price increase will still run in a reasonable range, and the expected target of CPI increase of about 3% for the whole year is expected to be realized, and the PPI increase will continue its downward trend in general during the year. However, it is also pointed out that in the medium and long term, the dividends of global integration and abundant labor supply, which played an important role in curbing inflation in the first 20 years of this century, have been reversed, and the current cost of energy transformation and industrial chain reconstruction has risen. The viscosity and duration of this round of global inflation may be more serious than before.

"Maintaining monetary stability is the primary responsibility of the central bank. Maintaining the stability of inflation is the meaning of macroeconomic stability and an environmental requirement for promoting sustained and stable economic growth. " The central bank pointed out in the column that "the annual price can still achieve the expected target, but we should be alert to structural inflationary pressure".

Traditionally, the central bank will reveal the next stage of monetary policy thinking in the quarterly monetary policy implementation report. Compared with the monetary policy report in the first quarter, the central bank continued to emphasize the need to strengthen the implementation of prudent monetary policy and give full play to the dual functions of monetary policy tools. The new formulation is "giving consideration to short-term and long-term, economic growth and price stability, internal equilibrium and external equilibrium".

The central bank also stressed that it will persist in not engaging in "flood irrigation" and not issuing excessive money to provide stronger and higher-quality support for the real economy; Maintain a reasonable and sufficient liquidity and increase credit support for enterprises.

Wang Yunjin, a senior researcher at Trust Investment Research Institute, believes that China's monetary policy should maintain its strategic strength under the complicated external situation and the need for a solid foundation for domestic economic recovery. On the one hand, using aggregate and structural tools to maintain reasonable and sufficient market liquidity, meet the financing needs of the real economy, and support infrastructure investment and key areas; On the other hand, we will not engage in flood irrigation, overspend money and overdraw the future.

"In the future, the central bank will be more cautious in releasing liquidity, and it is unlikely that it will be greatly relaxed. It will pay more attention to providing high-quality financial services with stable total volume and excellent structure. In the second half of 2022, the adjustment of credit structure will be given more priority, and the proportion of manufacturing loans and inclusive small and micro loans will gradually increase, and the growth rate will remain above 20%; The proportion of real estate loans has dropped significantly. " Wang Yunjin said.

Yang Chang, chief analyst of Zhongtai Securities, believes that the central bank's monetary policy will take a discretionary approach to deal with inflation changes. If the price falls within the tolerance range, the policy focus will still fall on promoting economic and employment recovery; If we break through tolerance intervals, it will form the motive force to adjust monetary policy.

Make full use of the policy toolbox because of the city's policy

Regarding the real estate problem that the market is concerned about, the monetary policy implementation report in the second quarter basically continued the tone set by the the Political Bureau of the Communist Party of China (CPC) Central Committee meeting at the end of July and the central bank's mid-year work meeting, emphasizing "not speculating on housing" and "not using real estate as a short-term means to stimulate the economy"; For the current difficulties faced by real estate, we emphasize "making full use of the policy toolbox because of the city", support the rigid and improved housing demand, and steadily implement the prudent management system of real estate finance to promote the healthy development and virtuous circle 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 rebounded slightly. However, in July, the "stop supply and stop loan" incident of individual real estate led to the lack of confidence of residents in buying houses, the sales of real estate weakened again, and the signs of residents' contraction continued.

Li explained that "making full use of the policy toolbox because of the city's policy" mainly refers to two aspects. First, when the central bank implements differentiated credit policies (down payment ratio and mortgage interest rate level), it should not only support rigid and improved housing demand, but also promote the adjustment and optimization of credit structure, improve finance to effectively support the real economy, and prevent the occurrence of real estate risks; Second, when dealing with the risk outbreak of local real estate projects and ensuring the delivery of buildings, we should also innovate the policy toolbox.

Wang Yunjin believes that "not using real estate as a short-term means to stimulate the economy" means that real estate-related credit may take some time to recover slowly; "Steady implementation of prudent management system of real estate finance" means that the central bank is unlikely to relax centralized management in the future, and it may be more important to control real estate financial risks.

On August 1 day, when the central bank held the work deployment meeting for the second half of 2022, it requested to keep the financing channels such as real estate credit and bonds stable and accelerate the exploration of new modes of real estate development. The central bank's monetary policy report in the second quarter did not mention these words, but more emphasized "stability" and "risk prevention".

Compared with the first quarter's monetary policy implementation report, which emphasizes "overall planning to prevent and resolve major financial risks", the second quarter's monetary policy implementation report requires "overall planning of economic development and risk prevention to maintain the overall stability of the financial system", which means that risk prevention and economic development need to be promoted as a whole.

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

The central bank stressed that it is necessary to constantly consolidate the main responsibility of financial institutions and their shareholders, the local territorial responsibility and the regulatory responsibility of financial management departments, form a joint force of risk disposal, and ensure the effective implementation and landing of disposal measures. Improve the financial risk accountability mechanism, seriously investigate the responsibility of major financial risks, and effectively prevent moral hazard. Resolutely hold the bottom line that systemic financial risks do not occur.

The central bank also pointed out that strengthening the construction of financial rule of law, taking the opportunity of formulating financial stability law and setting up financial stability guarantee fund, further rationalizing and improving the long-term mechanism for preventing, resolving and handling financial risks, and promoting the marketization, rule of law and normalization of the handling mechanism.

"This means that for the real estate financial risk disposal, the regulatory authorities are working out a long-term mechanism, top-level design and guiding principles, including the rescue fund. All disposal measures are based on the principle of marketization and legalization, to prevent moral hazard, and to hold financial institutions that violate the rules accountable. " Li said that in terms of real estate risks, stabilizing the overall situation is the guiding principle, and there must be no systematic risks; At the same time, the central bank should form a coordination and linkage group with the CBRC and local governments to promote risk disposal and ensure the delivery of buildings; Under the principle of top-level design, innovative relief policy tools and "one project, one policy".

Wen Bin, chief economist of China Minsheng Bank, believes that in order to stabilize housing prices, land prices and expectations, the demand side may continue to relax in the future. It is expected that the local government will continue to introduce various measures to stabilize the real estate according to the actual situation, including but not limited to relaxing the "four limits" in some cities, adjusting the principle of "recognizing housing and recognizing loans" to support improved demand, and further reducing the mortgage interest rate to boost confidence and activate the market.