How to understand the central bank's overall RRR reduction of 0.25 percentage points? First, release more positive signals for stabilizing the macro-economic market. Since the first quarter, the economy has continued to face "triple pressure", a new round of epidemic rebound, and the external geopolitical crisis has become prominent. The RRR reduction is conducive to strengthening policy easing, boosting the confidence of the real economy and revising expectations. Second, the overall RRR reduction of 0.25 percentage points is just to solve the remaining 500 billion liquidity gap this year. According to our calculation, the liquidity gap caused by the expansion of the scope of reserve deposit in 2022 is about 1.5 trillion. After the central bank turns in the balance profit, the remaining gap is about 500 billion. The reserve requirement was comprehensively reduced by 0.25 percentage points, and a total of about 530 billion yuan of long-term funds were released, just to hedge the remaining gap.
In the next stage, monetary policy will focus on credit liberalization. Based on our credit cycle index, a complete cycle lasts about three years. The latest cycle began with the central bank's RRR reduction in July 2021. The central bank's credit Symposium released clear policy signals in August, and the data has improved significantly since October. According to this judgment, at least the first three quarters of this year will be in the credit expansion cycle, with broad follow-up space.
There is room for downward adjustment of five-year LPR. Historically, after the central bank lowered the reserve requirement, the situation of LPR lowering or not exists. We judge that the subsequent LPR decline is more likely. First, the RRR reduction can reduce the capital cost of financial institutions and promote the LPR reduction. Second, the national standing committee will convey a clear policy intention, which will further strengthen financial support for the real economy and reduce the comprehensive financing cost of enterprises. Third, at present, there is a wide credit force window. Considering the need to further stabilize housing loans and optimize the credit structure, reducing LPR will greatly boost the real economy.
The reduction of policy interest rate faces the practical constraints of the Fed's interest rate increase and exchange rate depreciation. First, the Fed is about to enter the most violent interest rate hike cycle after the Volcker period. Historically, during the Fed's interest rate hike period, the Central Bank of China has never lowered the benchmark interest rate. The interest rate spread between China and the United States has been upside down. If the Central Bank of China cuts interest rates again, the interest rate spread will bear greater contraction pressure. Second, in 2022, a series of factors supporting the RMB exchange rate were reversed, including the possible breaking of the leading edge of epidemic prevention and control, the increasing pressure of capital outflow, the decline of export growth, the tightening of US monetary policy than China, and the pressure of RMB devaluation began to appear.
Infrastructure development is ready, and the consumption stimulus policy is worth looking forward to. Since the first quarter, the issuance pace of special bonds has accelerated and the scale has been improved. The Ministry of finance has issued the remaining amount of the year. With the amount of 1.2 trillion in the fourth quarter of last year, the special bond funds have been in place. Since this year, the scale of projects reviewed by the national development and Reform Commission has increased significantly, and the carrier for expanding investment has been ready. At present, the promotion fee still lacks a key link, and the consumption growth of social groups is slow. Considering the important supporting role of consumption for the economy, a large number of measures to promote consumption were deployed at the national standing committee meeting on April 13. Later, we can look forward to the introduction of more specific and stronger consumption stimulus policies.
Risk factors: the epidemic situation worsened again, and the policy promotion was not as expected.
