Comments on financial data in February 2022: weak demand, disturbed by the epidemic, still need to cut interest rates and reserve requirements

Event:

On March 11, 2022, the people’s Bank of China released the financial data for February 2022.

Main points:

In February, social finance failed to make a good start. The growth rate of social finance decreased by 0.3 percentage points month on month, and the growth rate of credit decreased by 0.4 percentage points month on month.

RMB medium and long-term loans fell sharply, the largest decline since 2008. In February, undiscounted bank acceptance bills (- 486.7 billion yuan) and RMB loans (- 432.9 billion yuan) showed the largest year-on-year decrease in social finance. Among the RMB loans, residents (- 457.2 billion yuan) and medium – and long-term loans to enterprises (- 594.8 billion yuan) were the items with the largest decrease, with a total decrease of 1.05 trillion yuan, the largest decrease since 2008

Weak demand + epidemic situation is the main reason. From the demand side, the demand for real estate and manufacturing industry is still weak. The year-on-year growth rate of commercial housing transaction area in large and medium-sized cities and ten cities in February 30 was – 27.3% and – 14.0% respectively, slightly narrowed by 2.3 and 3.5 percentage points compared with the decline in January, but it is still in the downward channel. In terms of credit, the rediscount interest rate fell sharply by 211bp in February, indicating that the demand of banks for “filling loans with tickets” increased. From the perspective of epidemic disturbance, the number of confirmed covid-19 epidemic has increased since February, which has a negative impact on the physical demand. The number of newly confirmed cases in February was 162000, an increase of 95.6% over January. Confirmed cases occurred in 24 provinces. According to the order of the number of newly diagnosed people, the outbreak time points of the scattered epidemic are 2021 / 5, 2021 / 1, 2021 / 12, 2020 / 12 and 2020 / 7. It is found that when the scattered epidemic occurs, the growth rate of social finance is narrowed month on month, reflecting the disturbance of the epidemic on the demand side. In 2022, the number of confirmed cases of the epidemic is more, involving more provinces, and the corresponding impact is greater.

The demand side has not stabilized, and it is expected that the central bank will still have supporting policies such as reducing reserve requirements and interest rates. Since July 2021, the central bank has cut the reserve requirement twice and the interest rate once. Historically, the interest rate cut has never occurred alone in the year, and the interval between the first and second interest rate cuts is 1-4 months. Combined with the weak demand side data reflected by the social finance data in February, the operation of reducing the reserve requirement and interest rate can still be expected after the release of the economic data in late March and in the early second quarter.

Risk tip: the macro-economy fluctuated more than expected, and the monetary policy tightened more than expected.

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