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 deposit reserve ratio of 5%).
The risk of current stagnation is greater than the risk of inflation
At present, with the increasing pressure of economic downturn, it is urgent and necessary for the central bank to choose to reduce the reserve requirement at this time. Since the second half of the year, the economy has indeed faced a rapid decline. The market expects that the year-on-year growth rate of GDP in the fourth quarter may decline further. The export and real estate investment that originally pulled China's economy up from the epidemic will also weaken marginally in the future. Not only that, enterprise operation is under pressure, especially for small, medium-sized and micro enterprises, and the pressure of production costs is difficult to transfer to the downstream. Therefore, in this context, the premier specially stressed the need to "reduce the reserve requirement in time and increase support for the real economy, especially small, medium-sized and micro enterprises". On the other hand, although PPI reached a record high in October, from the perspective of trend, PPI peaking and falling is a high probability event.
We believe that the current risk of economic stagnation is higher than that of inflation, and the main purpose of this RRR reduction is to "stabilize the economy", and the focus of stabilizing the economy is to help relieve the operating pressure of small, medium and micro enterprises. At present, it coincides with the transformation of new and old economic drivers. Double carbon industry and high-tech industry are the new engines of future economic development. We judge the monetary tools of accurate droppers, such as directional RRR reduction, which is worth looking forward to.
Comprehensive RRR reduction + refinancing interest rate reduction to ease the pressure on the bank's liability side
This RRR reduction is a comprehensive RRR reduction, reducing the deposit reserve ratio of financial institutions by 0.5 percentage points, releasing a total of about 1.2 trillion yuan of long-term funds. In addition, the re loans for supporting agriculture and small businesses will be reduced by 0.25 percentage points from December 7, 2021. The comprehensive RRR reduction and the combination of supporting agriculture and small refinancing interest rates can effectively alleviate the pressure on the bank's liability side and better help the real economy. Among them, the comprehensive RRR reduction can reduce the bank capital cost by 15 billion yuan per year, and effectively reduce the financing cost of the real economy through the transmission mechanism. The reduction of refinancing interest rate for supporting agriculture and small expenditure is a monetary tool directly to the real economy. In combination with the deletion of the statements of "managing the general monetary gate" and "reducing the cost of bank liabilities" in the third quarter monetary policy report, this RRR reduction and the reduction of refinancing interest rate can also be regarded as a practice of the spirit of the report. It is certain that under the background of economic pressure, strengthening the cross cycle regulation of monetary policy will play an important role in stabilizing the economy.
After the reserve requirement reduction replaces MLF, the MLF interest rate is expected to remain unchanged
After the standard reduction and replacement of some MLF due, it is expected that the continued scale of the central bank may be reduced this month. At the same time, due to the low necessity of simultaneous adjustment of volume and price from historical observation, it is rare to adjust volume and price at the same time. Therefore, we believe that after the standard reduction and replacement of MLF, the expectation of MLF interest rate change this month has basically failed.
Risk statement
The economic downturn exceeded expectations and inflation exceeded expectations.
