Event:
Premier Li Keqiang chaired an executive meeting of the State Council on April 13 to deploy policies and measures to promote consumption, help stabilize the economic fundamentals and ensure the improvement of people's livelihood; Decided to further strengthen policy support such as export tax rebate to promote the steady development of foreign trade; Determine measures to increase financial support for the real economy and guide market players to reduce financing costs.
Comments:
\u3000\u30001. The probability of reducing the reserve requirement will fall this week, and the interest rate cut is still expected
The meeting proposed "timely use of RRR reduction and other monetary policy tools". We believe that the advance notice of the national Standing Committee means that the central bank's RRR reduction is expected to be implemented as soon as possible, which is the content of the meeting that attracted the most attention of the market.
Since March, international geopolitical conflicts and China's epidemic have posed all-round pressure on China's economic operation. In March, the official and Caixin manufacturing and non manufacturing PMI fell below the boom and bust line, and the triple pressure of demand contraction, supply shock and weakening expectation faced by China's economy is still heavy. On April 6, the executive meeting of the State Council proposed that the complexity and uncertainty of China's external environment had increased, and some exceeded expectations. The epidemic has disrupted the annual economic work deployment to a certain extent. It is expected that the GDP growth rate in the first quarter will fall below 5%, and it is significantly more difficult to achieve the economic growth target of about 5.5% in the whole year. Therefore, recently, we have always stressed that the steady growth policy will continue to increase, including the further easing of monetary policy, which is worth looking forward to.
Combined with the financial data in March and the recent performance of inter-bank interest rates, we believe that the main resistance to promoting wide credit lies in the financing demand rather than the financing supply of banks. The role of RRR reduction and "encouraging large banks with high provision level to reduce the provision rate in an orderly manner" proposed at this meeting is more reflected in the financing supply side, that is, to increase the bank's credit delivery capacity by easing the capital of commercial banks. The reduction of interest rate drives the decline of loan interest rate, which can directly boost the credit demand of enterprises and residents, and the positive effect is more reflected in the financing demand side. Although the RRR reduction also helps to drive the reduction of LPR interest rate to a certain extent, the effect of reducing policy interest rate is more direct and significant. Therefore, we believe that while the RRR reduction is about to be implemented, the interest rate reduction is still expected.
The market may worry that the upside down of China US 10-year interest rate will hinder China's interest rate reduction. In this regard, we believe that the upside down of China US interest rate spread mainly indirectly restricts China's monetary policy through the channels of international capital flow and RMB exchange rate. Recently, although there have been some capital outflows in the A-share and bond markets, the RMB exchange rate has remained stable. To a large extent, the capital inflow under the current account has provided flexibility for the RMB. The stability of the RMB exchange rate provides conditions for China's monetary policy to continue to "focus on me" while the Federal Reserve raises interest rates. At the same time, the short-term policy interest rates between China and the United States still maintain a high interest rate spread, which also provides a certain space for China to cut interest rates. However, with the subsequent rapid increase of interest rates by the Federal Reserve, the short-term interest rate spread between China and the United States will also narrow rapidly, and the time window for China to cut interest rates will gradually close. Therefore, to cut interest rates, we should cut them as soon as possible.
\u3000\u30002. Effective prevention and control of the epidemic is the prerequisite for the effectiveness of policies to promote consumption and stabilize foreign trade
In addition to increasing financial support for the real economy, the meeting focused on promoting consumption and stabilizing foreign trade. In terms of promoting consumption, the meeting put forward a number of positive suggestions, involving "smart +" consumption, medical and health care, elderly care, childcare, automobiles, household appliances, new energy vehicles and other fields. We believe that increasing consumption subsidies will be an important means of financial support for consumption. At present, many places across the country have begun to stimulate consumption by issuing consumption vouchers. In terms of stabilizing foreign trade, the core content of the meeting is the expansion and acceleration of export tax rebate.
We believe that the current epidemic situation in various places is the Chinese factor that has the greatest impact on consumption and foreign trade. Therefore, the above policies should give full play to the effect on the premise that the epidemic situation in China should be quickly controlled and the flow, logistics, production and consumption should return to normal as soon as possible. Only when the epidemic reaches its peak can the market's expectation of the economy really reach its bottom.
