: How to evaluate the "timing" of monetary policy?

1. How to evaluate the timing of monetary policy? (1) Exchange Rate: Stabilize market expectations, strengthen market management The statement on exchange rate by the Monetary Policy Committee in the fourth quarter is: "Enhance the resilience of the foreign exchange market, stabilize market expectations, strengthen market management, resolutely deal with behaviors that disrupt market order, resolutely prevent the formation of unilateral consistent expectations and self-realization, resolutely guard against the risk of exchange rate overshooting, and maintain the basic stability of the Renminbi exchange rate at a reasonable and balanced level." The statement added by the Monetary Policy Committee in the third quarter is: Strengthen expectation guidance, enhance exchange rate flexibility, maintain the basic stability of the Renminbi exchange rate at a reasonable and balanced level, prevent the formation of unilateral consistent expectations and self-reinforcement, and guard against the risk of exchange rate overshooting. Our understanding: In the fourth quarter of 2024, we emphasize that in the short term, monetary policy may be "self-oriented" (referring to the previous report "Self-oriented, Sword Shines Against 'Low Prices'"). However, as the central bank's statements change, there may be a marginal increase in the demand for short-term exchange rate stability. In the past two years, when the shadow variables of the countercyclical factor we calculated significantly increased, interbank interest rates showed a trend of rising. Against the background of stabilizing market expectations and strengthening market management, the fluctuation of short-term exchange rates may be one of the factors considered in timing monetary policy. (2) Preventing Funds from Circulating Aimlessly The statement from the Monetary Policy Committee in the fourth quarter is: "Enhance and improve the monetary policy toolkit, conduct government bond trading, pay attention to changes in long-term yield rates. Smooth the transmission mechanism of monetary policy, improve the efficiency of fund use, and prevent funds from circulating aimlessly." The statement from the Monetary Policy Committee in the third quarter is: "Strengthen the monetary policy toolkit, conduct government bond trading, pay attention to changes in long-term yield rates. Smooth the transmission mechanism of monetary policy, improve the efficiency of fund use." What is fund circulation aimlessly? Fund circulation aimlessly usually refers to funds accumulating in the financial system without flowing to the real economy. On a daily tracking level, we can track data on deposits from non-bank institutions and data on funds invested in real entities by non-bank institutions to observe the situation of funds circulating aimlessly. Data definition: We can refer to the liabilities to other financial institutions of other deposit-taking companies for data on deposits from non-bank institutions. Funds invested in real entities by non-bank institutions can be obtained through the increment of social financing - bank system to non-financial institutions (enterprises), residents, and government. Our data tracking found that in the past 12 months, the scale of new deposits from non-bank institutions was about 6 trillion, while funds invested in real entities by non-bank institutions were about 3.5 trillion. The significant increase in new deposits compared to funds invested in real entities may reflect a current situation where funds are accumulating in non-bank institutions. Historical experience shows that when funds accumulate in non-bank institutions, the bond yield rate tends to decline rapidly because non-bank institutions find it difficult to bear the pressure of being underinvested in assets. So why have deposits from non-bank institutions increased significantly in the past period? We believe it may be related to the behavior of residents moving their deposits. Referring to the formula: New deposits from non-bank institutions Financing from banks to non-bank institutions + Financing from real entities to non-bank institutions - Funds invested by non-bank institutions in real entities. Over the past year, the amount of financing from real entities to non-bank institutions has increased significantly, but the amount of financing from banks to non-bank institutions has not. This indicates that the current high growth of non-bank deposits mainly comes from deposits from real entities (mainly residents). Looking ahead, if there is no turning point in the behavior of residents moving their deposits to non-bank institutions, and if funds continue to accumulate in non-bank institutions due to the low return on investment in real entities, the problem of funds circulating aimlessly may persist, which naturally limits the space for the central bank to inject funds into the market through quantitative tools. 2. Comparison of Monetary Policy Reports This article is selected from the WeChat public account "Yi Yu Zhong". Editor: Chen Yufeng, GMTEight.