In his book central bank and money supply, Sheng Songcheng believes that the change of statutory reserve ratio can not change the total amount of base money or affect the assets and liabilities of the central bank, which is also in line with the understanding of the market. However, in reality, although the RRR reduction will not change the total liabilities of the central bank, it will immediately change the debt structure of the central bank, which is reflected in the decline of deposits to other deposit companies and the increase of money circulation. At the same time, the central bank will recover the liquidity after reducing the reserve requirement and putting in a large amount of liquidity at one time. Commercial banks will take credit expansion after the RRR reduction. Both of them will have a chain impact on multiple items (including asset side and liability side) of the central bank's balance sheet for several consecutive months. We will review the previous RRR reduction since 2018, including the released liquidity and the changes in various items of the central bank's balance sheet in the month, the next month and the next month.
The RRR reduction can have an immediate impact on the liability side of the central bank's balance sheet, but the impact on the asset side lags slightly: the central bank's RRR reduction after 2018 is resumed. On the whole, the month and next month of RRR reduction are reflected in the increase of "reserve currency: Currency Issuance" on the liability side and the decrease of "reserve currency: deposits of other deposit companies", The decrease of "creditor's rights to other deposit companies" on the asset side. The following month, these three subjects showed the opposite characteristics: the "reserve currency: currency issuance" on the liability side decreased, "reserve currency: deposits of other deposit companies" increased, and the "creditor's rights to other deposit companies" on the asset side increased. The main reason is that after the liquidity released by the RRR reduction in the current month, commercial banks carry out gradual credit derivation in the next month and the next month. Commercial banks can choose to withdraw cash and then issue loans to market entities. After obtaining loans, market entities can deposit the loans back to commercial banks. Commercial banks deposit the newly derived deposits back to the central bank as deposit reserves to form new "deposits of other deposit companies", while "reserve currency: currency issuance" is significantly reduced. At the same time, with the retreat of the RRR reduction effect, the central bank can gradually supplement liquidity to commercial banks through Omo and MLF. At the same time, after the RRR reduction, the "government deposits" in the liability end in the current month and the next month tend to increase greatly, which may also reflect the cooperation with the Finance: more financial bonds are issued in the month of RRR reduction, which is transformed into more government deposits and tighter liquidity. Therefore, the central bank cooperates through the tools of RRR reduction. On the asset side, after the RRR reduction, the central bank released a large amount of liquidity to commercial banks at one time, but this itself did not affect the asset side of the central bank, but then recovered the liquidity through Omo and MLF, which was reflected in the shrinkage of the central bank. In the next two months, the effect of RRR reduction gradually disappeared, and the central bank supplemented liquidity to the market through Omo and MLF, which was reflected in the central bank's table expansion.
The macro and credit environment of this RRR reduction is similar to that in January 2019, which is reflected in the basic bottoming of social finance. At the same time, all ministries and commissions take stabilizing the economy as the main goal of their policies. This RRR reduction releases liquidity of RMB 120 billion, which is relatively close to RMB 150 billion in January 2019. From a financial perspective, this RRR reduction is also accompanied by the accelerated issuance of special bonds, which is also relatively similar to that in early 2019. However, the uncertainty this time lies in whether there may be obvious signs of a rebound in social finance in January, which also determines whether there is the possibility of another RRR reduction in January. If the RRR is not reduced in January, it is expected that after the RRR reduction in December, the changes of various items in the central bank's balance sheet in January and February will be similar to those before. If the RRR is lowered again in January, the liquidity of the combined investment of the two RRR reductions will be very huge. The central bank is more likely to significantly recover liquidity through tools such as Omo and MLF, which is reflected in the significant shrinkage of the central bank. On the asset side, "creditor's rights against other deposit companies" also contracted continuously to a greater extent. On the liability side, the liability structure has changed: "reserve currency: currency issuance" experienced a significant increase after continuous RRR reduction, and then contracted. "Deposits of other deposit companies in the current month" experienced a significant contraction first and then an increase. At the same time, "government deposit" shows an uncertain trend when fiscal expenditure and fiscal bond issuance accelerate at the same time.
Production data: the price of thermal coal decreased by 1% compared with last week, and the prices of iron ore and rebar increased by 4.6% and 4.9% respectively. Rebar futures inventory decreased by 81.8% compared with last week. The blast furnace operating rate this week was 46%, down 0.4 percentage points from last week. CRB commodities and crude oil rose 1% and 0.9% respectively, copper spot rose 0.9% and aluminum spot rose 4.4%.
Demand: the demand for real estate increased year-on-year over the same period last month; Land supply and transaction data decreased year-on-year. The real estate transaction area of 30 large and medium-sized cities (12.11-12.24) increased by 16.6% year-on-year and decreased by 19.7% year-on-year. The two-week data of land supply area of 100 large and medium-sized cities (12.05-12.19) decreased by 81.1% year-on-year and 70.9% year-on-year. The land transaction area of 100 large and medium-sized cities (12.05-12.19) decreased by 9.2% compared with the same period last month and 71.4% compared with the same period last year. The land transaction premium rate (12.13-12.19) was 1.6%, down 4.4 percentage points compared with last week.
Food prices: this week, the prices of pork, eggs and vegetables decreased by 0.9%, 1.6% and 3.3% respectively compared with last week, and the price of fruit increased by 0.5%. The Shenzhen Agricultural Products Group Co.Ltd(000061) wholesale price 200 index fell 0.9% from last week. Monthly, the average price of pork was 24.19 yuan in December and 19.9 yuan in November, up 21.56% month on month. The average price of eggs was 10.14 yuan in December and 10.5 yuan in November, down 3% month on month. 4%。 The average price of vegetables was 5.25 yuan in December and 4.5 yuan in November, up 16.67% month on month. The average price of fruit was 6.15 yuan in December and 5.4 yuan in November, up 13.89% month on month. The average value of Shenzhen Agricultural Products Group Co.Ltd(000061) wholesale price 200 index in December was 126.99 and that in November was 113.2, down 12.18% month on month.
Liquidity: this week, Omo invested 50 billion yuan and matured 50 billion yuan. From December 1 to December 24, the open market is - 850 billion, and the total net liquidity investment this month is 350 billion yuan. The one-year AAA interbank deposit certificate interest rate closed at 2.75%, up 6BP compared with last week. This week, dr007 was lower than the 7-day reverse repo rate. The difference was the highest on December 23, which was 30.8bp, and the lowest on December 20, which was 9.6bp, which was 22bp lower than the 7-day reverse repo rate on average. The 1-year AAA certificate of deposit interest rate is lower than the 1-year MLF interest rate, with a minimum difference of 17.4bp, a maximum of 22.8bp and an average low of 19.7bp, reflecting the relatively loose liquidity of the inter-bank market. The short end of treasury bond yield (one-year term) rose 2bp compared with last week, while the long end of treasury bond yield (10-year term) fell 1bp compared with last week to close at 2.35% and 2.90% respectively. Dr007 fell 2bp compared with last week to close at 1.98%. This week, Shanghai Stock market and gem decreased by 1.06% and 3.79% respectively.
