On April 15, 2022, the people's Bank of China decided to reduce the deposit reserve ratio of financial institutions by 0.25 percentage points on April 25, 2022. For urban commercial banks without inter provincial operation and rural commercial banks with deposit reserve ratio higher than 5%, an additional 0.25 percentage point will be reduced on the basis of reducing the deposit reserve ratio by 0.25 percentage point. After this reduction, the weighted average deposit reserve ratio of financial institutions is 8.1%.
The timing of RRR reduction is in line with expectations and timely responds to market demand. The time of this RRR reduction is in line with expectations. Both the national standing committee meeting on April 13 and the central bank press conference on April 14 mentioned that monetary policy tools such as RRR reduction will be used to support the real economy in the near future. Therefore, the market has full expectations for the time point of RRR reduction.
The rate of RRR reduction was lower than expected and focused on targeted credit extension. The range of this RRR reduction is slightly lower than market expectations. We believe that the only 0.25 percentage point reduction is due to two considerations: first, the current liquidity is at a reasonable and sufficient level. From the perspective of capital interest rate, dr007 has been below 2.00% continuously since April 2, and the overnight interest rate has also dropped to a lower level; Second, at present, monetary policy needs targeted wide credit to support the weak links of the real economy. Therefore, this time, in addition to the general reduction of the deposit reserve ratio, for urban commercial banks that do not operate across provinces and agricultural commercial banks with a deposit reserve ratio higher than 5%, an additional 0.25 percentage point will be reduced. The purpose is to increase support for small, medium-sized and micro enterprises and agriculture, rural areas and farmers. In addition, on April 15, the market interest rate pricing self-discipline mechanism held a meeting to encourage the floating upper limit of deposit interest rate of small and medium-sized banks to be reduced by about 10bp. The purpose is also to directly reduce the debt cost of small and medium-sized banks and reduce the comprehensive social financing cost through the transmission of financial institutions, which is basically consistent with the purpose of this reduction.
The orientation of prudent monetary policy has not changed, but there are two constraints. We believe that the central bank will continue to implement a prudent monetary policy in the future to support the reasonable financing needs of the real economy. Looking back, there are two constraints on the operation of monetary policy: first, the central banks of overseas developed economies represented by the Federal Reserve have collectively tightened monetary policy. Since March, the Fed has been very hawkish. At present, it is expected to raise interest rates by 50bp and shrink the table at the May meeting. This operation will undoubtedly have a certain impact on the RMB exchange rate. Although considering the large size of China's economy, the operation of the central bank will remain "self dominated", there are still some restrictions on policy dislocation. Second, from the second half of the year, on the one hand, the long-term high PPI may be gradually transmitted to CPI, on the other hand, there is an upward risk in China's food prices in the second half of the year. Considering the two points, although the current CPI is low, there is a certain inflationary pressure in the second half of the year, which may affect the operation of the central bank's monetary policy.
Overall, in the current macroeconomic context, on the one hand, monetary policy has done what it should do, and the subsequent direction of monetary policy will still put more emphasis on credit easing. On the other hand, in order to further support the growth of the real economy, other policies may be needed to cooperate with monetary policy in order to form a more favorable support for the real economy.
Will the reserve requirement and interest rate be reduced in the future? We believe that from the perspective of policy interest rate, considering the policy orientation of reducing the comprehensive financing cost of the real economy, there is still the possibility of reducing the reserve requirement and interest rate in the future, but the time point still needs to wait. In the statement of this RRR reduction, the central bank stressed that liquidity has been at a reasonable and sufficient level, and the comprehensive deposit reserve ratio of financial institutions has reached 8.1% after the RRR reduction, which is much narrower than before. Therefore, the next RRR reduction needs further observation, such as monitoring whether the market liquidity will change greatly. On the whole, considering the actual situation of China's economic growth, although it faces two major constraints, there is still room for monetary policy easing in the future.
Risk tip: downward pressure on economic fundamentals is increasing; Liquidity tightened more than expected; The impact of covid-19 epidemic in China has expanded.
