Summary of Key Points from the Conference Call Industry Overview - The conference call primarily discusses the changes in China's monetary policy framework and its implications for economic growth and liquidity management. Core Insights and Arguments 1. **Monetary Policy Changes**: Since 2025, the main constraints on monetary policy have shifted from stabilizing the exchange rate to addressing net interest margin pressures and risk prevention. The exchange rate is no longer a significant constraint as of Q2 2025, with the USDCNH and USDCNY reaching a unified rate of 7.10 [2][3][4]. 2. **Need for Rate Cuts**: The necessity for interest rate cuts and reserve requirement ratio (RRR) reductions is increasing, particularly if Q3 GDP growth falls below 5.0%. Economic data from July and August has consistently underperformed expectations, indicating a potential need for policy adjustments [4][24][26]. 3. **Government Bond Trading Resumption**: The conditions for resuming government bond trading are becoming more favorable. After a pause in Q1 2025, market expectations for a resumption have grown, especially if the Ministry of Finance issues bonds early in Q4 2025, which could alleviate supply pressure [5][26]. 4. **Framework Evolution**: The monetary policy framework has evolved to focus more on price-based controls rather than quantity-based tools. Key indicators now include M2, social financing, and loan growth, reflecting a shift in the central bank's strategy to stabilize economic growth [6][8][27]. 5. **Liquidity Management**: The liquidity management framework has changed significantly, relying on various tools such as overnight and 7-day reverse repos, with government bond trading serving as a supplementary tool when other methods are insufficient [13][14][19]. 6. **Dual Pillar System**: The dual pillar system distinguishes between monetary policy aimed at macroeconomic stability and macro-prudential policy focused on preventing systemic financial risks. This includes measures like the "three red lines" in the real estate sector [10][11][12]. 7. **Interest Rate Corridor Adjustments**: The interest rate corridor mechanism has undergone changes, with the 7-day reverse repo rate becoming the primary policy rate. The new corridor reflects a narrower range of fluctuations compared to previous versions [20][23]. 8. **Future Expectations**: There is a high probability of further rate cuts and RRR reductions in Q4 2025 to support economic growth targets. The resumption of government bond trading is also anticipated as a liquidity management tool rather than a price control measure [26][27]. Other Important but Potentially Overlooked Content - The central bank's focus on price-based tools indicates a strategic shift in response to changing economic conditions, emphasizing the need for market adaptation to these evolving frameworks [27]. - The potential for hidden interest rate hikes due to increased government bond supply highlights the delicate balance the central bank must maintain in managing liquidity and interest rates [5][19].

Group 1 - The Deputy Governor of the Bank of Japan, Masayoshi Amamiya, signaled a continued tightening of monetary policy, stating that further interest rate hikes are an "appropriate policy choice" due to the current economic recovery and improving prices [1] - Despite three interest rate hikes this year, Japan's real interest rates remain significantly negative, indicating that the current tightening is insufficient to fully offset inflation, allowing room for further rate increases [1] - Amamiya emphasized a shift in policy tools, prioritizing adjustments to short-term policy rates over frequent changes in government bond purchase levels, marking a significant transition towards "price-based control" [1] Group 2 - Amamiya provided a clear roadmap for the reform of the government bond market, advocating for a gradual reduction in the central bank's bond purchases to allow long-term interest rates to be determined by market supply and demand [2] - He highlighted the importance of "risk management," noting multiple challenges facing the Japanese economy, including global economic slowdown, rising supply chain costs due to protectionism, and energy price volatility from geopolitical conflicts [2] - The Bank of Japan has established a rapid response mechanism to intervene promptly if economic indicators deviate from baseline expectations, reflecting a cautious approach to recent market optimism [2] Group 3 - The Bank of Japan is developing a monthly bond purchase standard aligned with an "appropriate reserve level," indicating that future purchase volumes will be dynamically adjusted based on economic needs, marking the official start of quantitative tightening (QT) [3]

◇ 本文原载《债券》2025年7月刊 摘 要 ◇ 作者：上海农商银行金融市场部总经理 张天海 上海农商银行金融市场部高级交易员 金天立 上海农商银行金融市场部头寸管理岗 骆映希 我国货币政策框架顺应经济发展阶段，从以数量型调控为主逐步转向数量型与价格型调控并行。2024年，我国货币政策框架加速转 型，明确了7天期逆回购操作利率的政策利率地位，在适度收窄利率走廊的同时，进一步丰富了货币政策工具体系。对于债券市场 而言，货币政策框架转型后，短期市场波动幅度有所收窄，由交易行为引发的非理性定价得到纠正，政策利率成为银行等机构的定 价基准。展望未来，货币政策框架转型将有助于引导债券市场合理定价，调节国债交易活跃度，为利率上行期储备政策工具，助力 我国债券市场对外开放。 货币政策 转型 价格型调控 定价基准 关键词 货币政策是宏观调控的重要组成部分，其框架必然随着内外部宏观经济环境的变化和经济发展阶段的跃迁而适时调整优化。参考海 外经验，21世纪以来，美国为应对经济增长挑战，先后实施了四轮量化宽松（QE）政策；日本通过QE、质化量化宽松（QQE）及 收益率曲线控制（YCC）等政策应对通缩压力。当前，我国经济正处于新旧动 ...

Historical Context - From 1949 to 1977, China's monetary policy served as an administrative tool under a unified banking system, lacking market foundations and credit creation mechanisms[3][4]. - Post-1978, the separation of central and commercial banking functions led to an independent monetary policy framework, establishing a dual-layer currency creation mechanism[4][5]. Transition Phases - From 1998 to 2012, a quantity-based control system emerged, with M2 and total credit volume as core targets, driven by non-market interest rates and external pressures[5][6]. - After 2012, the effectiveness of quantity tools diminished, prompting a shift towards price-based monetary policy, with interest rates becoming central to regulation[6][7]. Structural Changes - By 2020, the proportion of new RMB loans in total social financing dropped from 91.9% in 2002 to 57.5%, indicating a shift towards off-balance-sheet financing[7][30]. - The balance of current accounts as a percentage of GDP decreased from around 10% in 2007 to below 3% post-2011, reflecting changes in foreign exchange reserves and monetary policy dynamics[7][34]. Policy Mechanisms - The establishment of a rate corridor in 2015 clarified policy signals, with the SLF as the upper limit and excess reserve rates as the lower limit, enhancing market expectations[9][10]. - As of 2023, the monetary policy framework has been optimized to strengthen the price-oriented function of policy rates, narrowing the rate corridor from 245 basis points to 70 basis points[10][11]. Future Outlook - The price-based framework is expected to deepen, with structural monetary policy tools gaining priority to address financing gaps in emerging sectors like technology and green industries[12][11]. - The focus will shift from total quantity control to structural optimization, emphasizing targeted resource allocation in key areas such as housing and infrastructure[12][11].

Group 1: Report Industry Investment Rating - Not provided in the content Group 2: Core Viewpoints of the Report - In 2025, the liquidity and the central bank's monetary policy stance have become the focus of the market. The new narrative logic of liquidity in the first half of the year may also form the new normal in the second half, including the continuous transformation of the monetary policy framework, the continuous pressure on banks' net interest margins, and the need to balance multiple policy goals [1][3][9] - The policy side still focuses on smoothing the monetary policy transmission mechanism and promoting the decline of the comprehensive social financing cost in the second half of the year, and needs to balance "stable growth" and "risk prevention" [3][4][89] Group 3: Summary According to the Directory 1. The "Unexpected" and "Expected" of the Funding Situation in the First Half of the Year - In the first half of 2025, the funding situation changed from the long - term stable and abundant state in the second half of last year. The first quarter was tight, and the second quarter gradually switched to a stable and balanced state. The change was due to the dynamic switching of policy target priorities and the evolution of the monetary policy framework [11][12] - The first half of the year can be divided into four stages based on factors such as central bank's open - market operations, policy focus switching, and funding rate trends. Each stage has different characteristics in terms of funding rates, central bank's operations, and market supply - demand patterns [15] 2. Some New Narratives of Liquidity in 2025 2.1 Framework "Variation" - The monetary policy framework is further transforming to price - based regulation, clarifying the main policy interest rates and weakening the policy attributes of other prices. The MLF has faded out of its medium - term policy interest rate attribute [36] - The policy aims to smooth the interest rate transmission mechanism, strengthen the effect of deposit interest rate adjustment, and promote the decline of the real financing cost. It also conducts policy communication and expectation guidance with the market in a timely manner, and the structural tools are precisely targeted [34][37] 2.2 The "Actions" and "Inactions" of Monetary Policy - **Supportive Stance Remains Unchanged**: The monetary policy needs to balance multiple goals, and the central bank strengthens communication with the market to correct the market's over - trading expectations of monetary easing [39] - **"Inactions" in the First Quarter**: The central bank's investment was relatively restrained in the first quarter, focusing on preventing capital idling, interest rate risks, and stabilizing the exchange rate, which was also reflected in the statements of the monetary policy meetings [43][45] - **"Actions" and "Inactions" in the Second Quarter**: In the second half of March, the supply - demand pattern of the funding situation improved. The central bank increased its support, but still needed to balance "stable growth" and "risk prevention", which was also reflected in the statements of the monetary policy meetings [47][50] 2.3 Market "Echoes" - **Funding Rates are "Rigid" and Once Faced "Negative Carry"**: In the first quarter, the funding rates were at a high level with high volatility, and the bond market had a prominent "negative carry" phenomenon. The yield curve changed from "bear - flat" to "bear - steep", corresponding to the marginal changes in institutional behavior [53][54] - **Banks' Liability - Side Pressure is Concerned, and Funding Stratification is Weakened**: In the first quarter, the large - scale banks' fund lending decreased, and the liquidity supply - demand contradiction was magnified. In the second quarter, the banks' liability - side pressure was generally controllable, and the funding stratification was mainly seasonally high [69][77] - **The Bond Market Fluctuated More, and Banks Realized Floating Profits at the End of the Quarter**: In the first quarter, banks increased their bond - selling efforts at the end of the quarter to realize floating profits. In the second quarter, the pressure on banks to sell bonds to realize profits was alleviated [81][84] 3. Grasp the New Normal in the Second Half of the Year 3.1 Smooth the Interest Rate Transmission Mechanism and Reduce Banks' Liability Costs - The policy side will continue to smooth the policy interest rate transmission mechanism, enhance financial institutions' independent pricing ability, and strengthen the linkage between asset - side and liability - side interest rate adjustments [89] - Attention should be paid to banks' interest margin pressure, and banks should be guided to maintain reasonable asset returns and liability costs through market - based methods [90] 3.2 Dynamic Balance between "Stable Growth" and "Risk Prevention" - **Coordination of Various Policy Tools**: In terms of quantitative tools, if there is a reserve requirement ratio cut, the third quarter may be a good observation period, with a range of 25 - 50BP. Otherwise, the central bank may increase the investment of outright reverse repurchases, MLF, or restart treasury bond trading operations. In terms of price - based tools, there may be a possibility of an interest rate cut within the year, with a range of 10 - 25BP, but the timing is uncertain [94][95] - **Outlook on Funding and Certificate of Deposit Prices**: It is expected that the high - volatility market in the first quarter will not reappear, and the funding rates may continue the state of low - volatility and rigidity in the second quarter. If the interest rate cut occurs in the second half of the year, it is expected to drive down the certificate of deposit rates; otherwise, they may remain volatile [4]