event:
On December 6, the central bank announced that 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 5% deposit reserve ratio). After this reduction, the weighted average deposit reserve ratio of financial institutions is 8.4%.
comment:
1. The overall RRR reduction was faster than expected, highlighting the determination of the management
Earlier, on December 3, Premier Li Keqiang met with georgiyeva of the International Monetary Fund, "We will continue to implement a prudent monetary policy, maintain reasonable and sufficient liquidity, formulate policies around the needs of market players, use a variety of monetary tools, timely reduce reserve requirements, increase support for the real economy, especially small, medium and micro enterprises, promote a steady decline in comprehensive financing costs, and ensure the stable and healthy operation of the economy," he said. The central bank's RRR reduction is undoubtedly an important measure to implement the position of the management, but the overall pace is faster than expected.
In the past, after the release of the RRR signal, it often enters the substantive landing in the next few weeks. However, after the premier of the State Council proposed "timely RRR reduction", the central bank announced a comprehensive RRR reduction only every three days. The rapid pace of landing and implementing RRR reduction shows the high attention of the management and the determination to stabilize the confidence of the financial market.
2. Purpose of RRR reduction: strengthen cross cycle adjustment and better support the development of real economy
The central bank said that the purpose of the RRR reduction is to strengthen cross cycle regulation, optimize the capital structure of financial institutions, improve financial service capacity and better support the real economy. Compared with the expression of RRR reduction in July, the expression of "strengthening cross cycle adjustment" is added. At present, the economy is in the stage from high-speed growth to high-quality development. It is necessary to make cross cycle design and counter cycle adjustment in time to avoid large fluctuations in macroeconomic operation. At the same time, towards the end of the year, the importance of stable cross-year capital has increased. The RRR reduction is expected to support economic recovery and market liquidity.
At the same time, the central bank also mentioned that the purpose of the RRR reduction is to "effectively increase the long-term stable source of funds for financial institutions to support the real economy", "guide financial institutions to actively use the RRR reduction funds to increase support for small and micro enterprises", "promote the reduction of social comprehensive financing costs", etc. It reflects that the central bank's RRR reduction aims to increase financial support for the steady growth of the real economy, stimulate the financing demand of the real economy and enhance the vitality of market operation.
Since the beginning of this year, the central bank has continued to operate steadily. By timely increasing the amount of reverse repo operation, continuing the high amount of MLF, and keeping LPR unchanged for 20 consecutive months, it shows that the policy still supports banks to maintain moderate easing of medium and long-term liquidity and maintain the stable operation of funds. The RRR reduction will effectively drive the market interest rate downward, transmit to the deposit interest rate, alleviate the pressure of narrowing the bank's net interest margin, and finally guide the loan interest rate downward. From the social financing and credit data in October, although they all showed a year-on-year increase, the structure is still deteriorating. The medium and long-term loans of enterprises have maintained a year-on-year low increase for four consecutive months, reflecting the decline of enterprises' willingness to invest in the future. At the same time, the PMI of small enterprises has been below the boom and bust line for 7 consecutive months. At the same time, although the current commodity prices are moderately slow, they are still in the high range. The high operation of commodity prices will raise the production and operation costs of small and medium-sized enterprises and increase the operation difficulties of small and medium-sized enterprises. In addition, RRR reduction may indirectly reduce enterprise borrowing costs, stimulate enterprise financing needs and increase support for small and medium-sized enterprises.
3. Highlighting the autonomy of monetary policy, it is expected to release about 1.2 trillion long-term funds
The RRR reduction highlights the autonomy of China's monetary policy and effectively responds to internal and external pressures. From the external environment, the global inflationary pressure continues to rise, and the loose macro policies of central banks gradually decline, bringing uncertainty to the subsequent economic recovery. The Federal Reserve started taper as scheduled in November and began to reduce the scale of bond purchase. However, the time for raising interest rates has not been specified yet. The market expects the Federal Reserve to raise interest rates in the second quarter of next year. Therefore, in the period before the Fed's interest rate hike, it is becoming more and more important for China to take good care of China's economic fundamentals and ensure steady economic growth. At present, the autonomy of China's monetary policy is more prominent, and there is greater operational flexibility in the exchange rate. Choosing to lower the reserve requirement at this time point can not only stabilize China's economy, but also better resist the potential impact of future external factors.
The central bank made it clear that the orientation of prudent monetary policy has not changed, adhere to the normal monetary policy and do not engage in flood irrigation. The RRR reduction is a routine operation after the monetary policy returns to normal, Part of the released funds will be used by financial institutions to repay due medium-term lending facilities (MLF), some of which are used by financial institutions to supplement long-term funds to better meet the needs of market participants. According to the data, 950 billion yuan of MLF will expire on December 15. The RRR reduction will release a total of about 1.2 trillion yuan of long-term funds, hedge the maturing liquidity to a certain extent, and release medium and long-term funds. At the same time, the pressure of inflation remains to be seen, and there will be total easing of monetary policy in the short term It is still unlikely to maintain stability and looseness, which is still the first choice at present.
4. Impact on the market: the reduction of reserve requirement will release positive signals, the market is expected to recover, and the next year's market can be expected. Pay attention to finance, real estate, new energy industry, medicine, TMT industry, etc.
The RRR reduction is a comprehensive RRR reduction, which not only directly reduces the capital cost of financial institutions by about 15 billion yuan per year, but also promotes the reduction of social comprehensive financing cost through the transmission of financial institutions, drives the moderate decline of capital cost, alleviates the financing difficulties and expensive problems of small and medium-sized enterprises, promotes the smooth recovery of the economy and supports the development of the real economy.
In our previously released A-share investment strategy of Dongguan securities in the first half of 2022: consolidating the capital, cultivating the yuan and moving forward steadily, We clearly put forward that "in the first half of 2022, under China's self dominated tone, the moderate decline of China's economy in the second half of 2021 and the expectation of stable growth, China's monetary policy may release liquidity in stages. We do not rule out the possibility of the central bank's RRR reduction in the first quarter of 2022, which is expected to make a good start to the stable operation of the economy in 2022", "Economic growth has gradually returned to the normal potential growth target. The probability of first low and last stable throughout the year has increased. Coupled with the short-term moderate easing of inflation pressure, the policy support for the real economy is expected to increase moderately in the first half of the year. There is a phased easing of monetary policy. The possibility of moderate RRR reduction is not ruled out at the beginning of the year, which is expected to bring support to economic recovery and market liquidity.". The RRR reduction is in line with our expectations, and the time point is slightly earlier, showing the trend of fine-tuning monetary policy by the management. Due to the relatively large scale of the hedging due funds of the RRR reduction, it is actually more about the care and support of the funds at the end of the year.
In the past few years, the central bank has reduced the reserve requirement three times in 2019 and 2020 respectively, while the central bank has reduced the reserve requirement two times in 2021 (plus this one). Considering the pressure of the real economy, the expectation of steady growth in the first half of next year is still strong, and we expect that there is still the possibility of reducing the reserve requirement in the future, so as to realize the steady operation of the economy.
From the market point of view, the RRR reduction releases a positive signal, which is expected to have a positive impact on the market and drive the market to pick up. In the A-share investment strategy of Dongguan securities in the first half of 2022: consolidating the capital, cultivating the yuan and moving forward steadily, we clearly pointed out that "driven by the marginal improvement of liquidity at the beginning of 2022, policy fine-tuning, policy expectation of the two sessions, incremental capital allocation demand brought by common prosperity and other factors, it is expected to change the sideways pattern, move forward steadily and usher in a shock upward trend", The RRR reduction is also gradually verifying our judgment. It is expected that the next year's market can be expected.
In terms of industry, RRR reduction will benefit capital sensitive, commodity, high score red high dividend blue chip and sectors with strong financing demand. Specifically, capital sensitive industries include banking, real estate and brokerage sectors. The incremental funds released by the RRR reduction will expand the business demand of these sectors, thus bringing benefits. At the same time, for industries with strong financing demand, RRR reduction means that enterprises' ability to obtain funds and reduce the cost of obtaining funds. Therefore, RRR reduction is good for industries with tight capital chain and large financing cash flow, such as new energy industry, medicine, TMT industry, etc.
Risk statement
Repeated outbreaks outside China; Sino US trade friction; The risk of bank non-performing assets increased.
