Event: on December 6, in order to support the development of the real economy and promote the steady decline of comprehensive financing costs, the people's Bank of China decided to reduce the deposit reserve ratio of financial institutions by 0.5 percentage points on December 15, 2021 (excluding financial institutions that have implemented the deposit reserve ratio of 5%).
Method of reducing accuracy
The RRR reduction on December 6 was the rapid implementation of the "timely RRR reduction" announced by Premier Li Keqiang on December 3. This comprehensive RRR reduction released a total of about 1.2 trillion yuan of long-term funds. According to a reporter's question from the people's Bank of China, some of the released funds will be used to repay the maturing medium-term loan facility (MLF). On December 15, the MLF will expire at 950 billion; and some will be used by financial institutions to supplement long-term funds.
Purpose of standard reduction
1) The downward pressure on the economy has increased, the demand for steady growth has increased, and cross cycle regulation needs to be strengthened. Since the third quarter, the downward pressure on the economy has been highlighted due to the in-depth promotion of real estate regulation, repeated epidemics and high upstream costs. On December 6, the Politburo meeting stressed that efforts should be made to stabilize the macro-economic market, keep the economic operation within a reasonable range, and maintain the overall social stability. Cross cycle regulation is urgently needed. 2) Alleviate the local credit risk of the real estate industry and improve the overall market expectation. On December 3, in view of Evergrande's debt default, the "one bank, two sessions" expressed their position and communicated with the market one after another. The resolution of potential financial risks needs the cooperation of monetary policy. At the Politburo meeting on December 6, it was also said that we should promote the healthy development and virtuous cycle of the real estate industry, strictly regulate and control the real estate industry, and improve the margin. 3) Promote the reduction of comprehensive social financing costs. The RRR reduction will reduce the capital cost of financial institutions by about 15 billion yuan per year. The reduction of liability end cost will help to transfer to the asset end, so as to reduce the overall financing cost. The policy support direction is still high-quality development fields such as small and medium-sized enterprises, green development and scientific and technological innovation.
In the follow-up outlook, there is still room for further easing of monetary policy
The keynote of economic work in 2022 is to keep stability at the forefront, make progress while maintaining stability, coordinate development and security, enhance the importance of development, and there is still room for further easing of monetary policy. From a time point of view, the first half of the year is a loose window period. On the one hand, there is still downward pressure on the economy in the first half of the year. On the other hand, the overseas Fed has a high probability of raising interest rates in the second half of the year, which helps to maintain internal and external balance. The current macro environment can be summarized as "middle and late stage of economic downturn + initial stage of policy force + marginal improvement of supervision". The impact on stocks, bonds and foreign exchange under this environment is as follows:
Stock market: boost market sentiment, cross year market is not pessimistic
The RRR reduction is conducive to easing the economic downturn and local credit risks in the real estate industry, and boosting stock market sentiment. At present, the growth rate of corporate profits is down and the bottom of the credit cycle hovers. The reduction of reserve requirement funds is conducive to the improvement of the subsequent credit environment, and the cross-year market is not pessimistic. However, before the wide credit was fully opened, the market was still dominated by index shock structure. In the short term, attention was paid to the financial and real estate sector with favorable RRR reduction, and the main line was high-end manufacturing, technology and consumption in the medium and long term.
Bond market: good risk-free interest rate down, but the continued decline needs further loose support
The broad monetary policy is favorable for the decline of risk-free interest rate. However, with the marginal improvement of real estate regulation and the advance of Finance next year, there is a certain expectation difference on whether social finance will stabilize significantly. Therefore, it is difficult for the risk-free interest rate to continue to decline, and the continued decline needs further loose support.
Foreign exchange market: increased volatility and resilience in the short term
The differentiation of monetary policies between China and the United States will increase the fluctuation of RMB exchange rate. However, considering the following factors, the short-term RMB exchange rate in the foreign exchange market is still resilient. First, standing at the position of US dollar index 97 has included the possibility that the Fed may accelerate the pace of reducing QE and raising interest rates twice. The market has certain expectations for the hawkish attitude of the Fed, which will lead to insufficient motivation for the US dollar to continue to rise sharply. Second, in the short term, China's balance of payments pattern will not change significantly, and the current pattern of abundant US dollar liquidity in the inter-bank market will not change. With the financial quarter at the end of the year, the demand for foreign exchange settlement of enterprises increased, and the demand for RMB in the foreign exchange market was relatively strong. Whether from the fundamental or transaction level, the RMB is expected to remain strong.
Risk tips: 1) global epidemic outbreak again; 2) The Fed tightened more than expected; 3) The increase of overseas uncertainty has a great impact on the Chinese market.
