On April 13, Premier Li Keqiang presided over the executive meeting of the State Council. The meeting pointed out that "timely use of RRR reduction and other monetary policy tools" to ignite market wide monetary expectations.
Why did the RRR cut again in April?
At the end of last year, the central bank announced a reduction in reserve requirements and interest rates at the beginning of this year. In terms of money and credit, we expect continued easing in the first half of the year. Over the past period of time, hawkish signals from the Federal Reserve have been continuously released, US bond interest rates have risen rapidly, and the interest rate gap between China and the United States has narrowed rapidly. Recently, there has been a rare 10-year interest rate gap upside down between China and the United States in history. Just as the market is wondering whether China's monetary policy is constrained by the interest rate gap between China and the United States, at the current time point, the state will often release the RRR reduction signal to announce that China's monetary policy orientation is "self dominated".
The formulation of RRR reduction at the national standing committee will be fulfilled in the follow-up time in most cases. The RRR reduction may be implemented in April, and the RRR reduction will be seen as soon as this week. The RRR reduction fulfilled our previous judgment on China's monetary policy. Before the real estate stabilized, the monetary policy remained loose. There will be broad credit and broad money.
We were bullish on monetary easing in the second quarter for a simple reason: at present, China's demand data are weak, especially the impact of the epidemic on consumption and investment, and high-frequency data show that the impact of the epidemic has the potential to spread to exports and industrial production. Of course, the background of weak demand in China is that the real estate chain has not improved.
In addition to the RRR reduction in April, will interest rates be reduced in the future?
The national regular meeting mentioned "reducing the comprehensive financing cost of enterprises". We understand that this is also a signal of interest rate reduction. In addition to policy signals, we see whether there will be interest rate cuts in the future. It is worth looking forward to whether to cut interest rates in April. One of the reasons why we see that there will be interest rate cuts in the future is that the epidemic hit the economy in April this year, and the intensity is close to the first quarter of 2020. Another reason is that the second and third tier real estate sales are still weak.
In fact, there are not many effective anti epidemic economic policies in China. There are two core operations, real estate and finance. The effective implementation of these two policies requires the epidemic situation to be relatively controllable. In April, we need to stabilize the financial crisis and keep the financial crisis more stable. Therefore, the RRR reduction in April is a rational choice of monetary policy.
The RRR reduction has limited downward effect on interest rates.
The role of RRR reduction is to open up the space for bank credit. It is a credit operation rather than a monetary tool. RRR reduction will indeed increase the liquidity supply in the short term. However, the liquidity supply mode in the financial market is not only RRR reduction, the liquidity supply valve is in the central bank, and the means of tightening and loosening are also diversified.
At present, the epidemic still restricts the real economic activities, and the liquidity supply can be stable. We expect that the final effect of the RRR reduction in April is that the bank's table expansion space is opened and the downward trend of interest rate is limited.
Risk warning: the epidemic development exceeded expectations; Real estate credit is lower than expected; The steady growth policy was less than expected
