Matters:
On April 15, 2022, the central bank decided to reduce the RMB deposit reserve ratio of financial institutions by 0.25 percentage points from April 25. 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.
Ping An View:
Background and purpose of "RRR reduction". Following the establishment of two new special refinances for scientific and technological innovation and inclusive pension on April 6, the national Standing Committee directly named "timely use of RRR reduction and other monetary policy tools" on April 14. The background is mainly that the economic situation is becoming more and more optimistic. Specifically, first, the PMI data in March reflected that economic growth was significantly impacted by the epidemic. Second, China's import growth turned negative in March, and hidden worries about export growth emerged. Third, from the perspective of high-frequency data, the multi-point outbreak of covid-19 has impacted consumption and the stability of the supply chain, and the high-frequency data of real estate is still grinding bottom.
How does the subsequent LPR quotation change? Considering the relatively stable capital level in the near future, this RRR reduction plays a second role in making up the gap of basic currency, and the main purpose may be to reduce the debt cost of commercial banks. The mitigation effect of this RRR reduction on the debt cost of commercial banks is not enough to directly drive the decline of LPR quotation, but the subsequent central bank may further guide commercial banks to reduce LPR interest rates through the reform of deposit self-discipline mechanism. The scarcity of high-quality credit assets and the mitigation of bank debt costs will help banks reduce LPR quotations in the future.
Will the policy interest rate continue to fall? At present, the internal and external environment is becoming more complex and severe, the risk of China's economic slowdown is increasing, and the monetary policy needs to strengthen its support for the real economy, and reducing the policy interest rate is the most direct and effective policy means. However, under the new situation of the continuous conflict between Russia and Ukraine and the contraction of the Fed's policy, the constraints faced by interest rate cuts are also tightening. We believe that the central bank needs to pay close attention to the dynamic changes of relevant influencing factors, including the central government's attitude towards the economic growth target, the situation of international capital flows and the evolution of China's inflation.
Where is "wide credit" going? According to the clues provided by the press conference on financial statistics for the first quarter of 2022 held on April 15, the focus of medium and long-term loans in the first quarter is mainly loans in manufacturing, infrastructure and green fields, and residents' personal house purchase loans are still the main drag factor of wide credit. In addition, since December last year, the one-year LPR has been reduced by 15bp, driving the enterprise loan interest rate to 4.42% in the first quarter of 2022. We estimate that at the end of the first quarter, the interest payment scale of the enterprise sector increased by 6.8% year-on-year, and the interest payment pressure of the real economy is still large.
When will the economy finish "bottoming"? It is expected that the "wide credit" escorted by monetary policy will also work in the following aspects: first, take multiple measures to reduce the comprehensive financing cost of enterprises (such as encouraging small and medium-sized banks to reduce the floating ceiling of deposit benchmark interest rate); Second, further support the manufacturing industry and green areas, and accelerate the landing and use of structural tools. Third, strengthen the support for key areas of real estate. Fourth, start with the capital constraints faced by commercial banks (such as encouraging large banks to reduce the provision rate) to enhance the bank's loan lending capacity. At the same time, the tax rebate and special debt funds reserved by the fiscal policy will also be accelerated in the second quarter. We believe that with the support of policies, China's economy is expected to "bottom" in the second quarter.
On April 13, after the national Standing Committee named "timely use of reserve requirement reduction and other monetary policy tools", on April 15, the central bank decided to reduce the RMB deposit reserve ratio of financial institutions by 0.25 percentage points from April 25. 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. This paper analyzes the background and purpose of the current "RRR reduction", and focuses on answering the four core concerns of the current monetary policy, including: the possible change of the subsequent LPR quotation, whether the policy interest rate will continue to be reduced, where the "wide credit" is working, and when the economy will complete the "bottom".
