Event: on April 15, the central bank is scheduled to reduce the deposit reserve ratio by 0.25 percentage points on April 25. Core conclusion: This is a restrained RRR reduction, but it should be viewed objectively. In the future, the probability of reducing the reserve requirement again will be greatly reduced, but it is still possible to cut the interest rate (LPR will be reduced as soon as 4.20), and it is also possible to reduce the deposit interest rate of banks by a little.
1. From the time point of view, on April 13, the national Standing Committee raised and lowered the reserve requirement. Two days later, the central bank quickly announced that it was in line with the past law. In recent years, the national Standing Committee has mentioned the RRR reduction seven times. The first four central banks announced it within two weeks (the fastest two days later and the slowest 11 days later), but the central bank did not implement it after the fifth time (June 17, 2020). The sixth time (21.12.3) and this time (22.4.13) the central bank also announced the RRR reduction two days later, highlighting the central bank's executive power and in line with our prediction.
2. From the perspective of reasons, this RRR reduction aims to reduce costs, stabilize growth and take care of the real economy, especially small, medium and micro enterprises. The central bank's announcement shows that the RRR reduction has two major purposes: first, optimize the capital structure of financial institutions, increase the long-term stable capital sources of financial institutions, enhance the capital allocation capacity of financial institutions, and increase support for the real economy. The second is to guide financial institutions to actively use the RRR reduction funds to support industries and small, medium and micro enterprises seriously affected by the epidemic.
3. In terms of strength, the reduction of reserve requirement by 25bp is lower than the generally expected 50bp, which belongs to the relaxation of restraint. This is an expected standard reduction, but the intensity is only 25bp, which is lower than the 50bp unanimously expected by the market. All previous standard reductions since 2014 are basically above 50bp. Therefore, this standard reduction is a relaxation of restraint. According to the announcement of the central bank, this RRR reduction released a total of about 530 billion long-term funds. In addition, an additional 25bp will be reduced for urban commercial banks that do not operate across provinces and agricultural commercial banks with a deposit reserve ratio higher than 5%.
4. We should treat the restraint of the central bank objectively: "money is not omnipotent", and "it is better to lower than not to lower"
> looking straight ahead, the central bank clearly pointed out that it is subject to inflation and the Fed's interest rate hike. In the announcement, the central bank pointed out that the follow-up monetary policy should comprehensively consider two factors: one is to "pay close attention to the changes of price trends and maintain the overall stability of prices". The 4.6 and 4.13 regular sessions also stressed that "maintaining the economy within a reasonable range is to stabilize prices and employment"; The second is to "pay close attention to the adjustment of monetary policy in major developed economies and give consideration to internal and external balance". In fact, the Q4 monetary policy report released by the central bank on February 10 changed "monetary policy should focus on me" to "exchange rate policy should focus on me", which has shown that the central bank will pay more attention to the constraints of the Fed's accelerated interest rate hike on China.
> according to visitors, since the outbreak, especially since the second half of last year, the central bank has actually been very loose. Before this time, the reserve requirement has been reduced by 50bp on 21.7.9 and 21.12.6 respectively. This year, the central bank also handed in 1 trillion profit, which is also a disguised easing. In recent years, MLF and Omo have mostly continued in the same amount or even in excess. Therefore, it is not difficult to understand the announcement of this reduction. The central bank will say frankly that "the current liquidity is at a reasonable and sufficient level".
> in essence, "money is not omnipotent". The effect of reducing reserve requirements and interest rates on alleviating the current economic dilemma is actually limited. At present, it is more important to control the epidemic, ease finance, loosen real estate, expand infrastructure and other combinations. For a longer time, since the 2008 financial crisis, countries around the world have continued quantitative easing, but the global economy has not substantially improved; In the short term, China's central bank has been loose, but in the past six months, the monthly credit social financing has basically been "total increase and poor structure", that is, the effective demand has not been boosted.
5. Looking back, the probability of continuing to reduce the reserve requirement has been greatly reduced, but the window of interest rate reduction has not been closed. It is expected that the LPR may still be reduced (as soon as April 20), and the deposit interest rate of banks may also be reduced by a little. In addition, the central bank is expected to focus on stabilizing credit and paying more attention to structural easing.
> RRR reduction: 1.18 the central bank's press conference has pointed out that "the current deposit reserve ratio is 8.4%, which is not high anymore". After this reduction, it will be reduced to 8.1% again, indicating that there is little room for further RRR reduction.
> interest rate cut: the MLF interest rate has remained unchanged for three consecutive months since February, but based on the government work report's proposal of "promoting financial institutions to reduce the real loan interest rate, so that the majority of market participants can personally feel the real decline of comprehensive financing costs", the central bank still requires "promoting the reduction of comprehensive financing costs and stabilizing the macro-economic market" after this RRR cut, adding the impact of the intensification of the epidemic since March At present, the real estate is still falling sharply. We continue to suggest that interest rates may still be reduced in the future. However, compared with MLF interest rates, the probability of reducing LPR is greater (one-year and five-year). We expect that LPR will be reduced on April 20. At the same time, it is also possible to reduce the deposit interest rate of commercial banks by a little more, just like last June, so as to stabilize the bank interest rate gap.
6. Continue to prompt: the end of the policy has come, the end of the economy has not come, and the end of the market will take some time. "Setting the annual development target without relaxation" indicates that about 5.5% is still a hard requirement. There are two "unique skills" in the follow-up: one is to implement the existing policies as soon as possible, the other is to "get out early and get out quickly" without policies, mainly "release water, real estate and infrastructure", and the key is to avoid the "hard landing" of real estate. In addition, the economy is "high open" from January to February and "low go" from March to April.
7. How do stocks and bonds go after the RRR reduction? Taking the previous RRR reduction since 2008 as an example, the long-term performance of stocks after RRR reduction is usually better than that in the short term, and the large and small stocks are basically reflected in the same period, among which the performance of small cap stocks is slightly superior; Compared with the stock market, the bond yield seems to be more able to include a certain price in before the RRR reduction, which is reflected in the early decline of the bond yield one week before the RRR reduction and the limited downward space after the RRR reduction. However, this law is not significant after 2019. Specific to this RRR reduction, in view of the restraint of 25bp and lower than market expectations, it is expected that the boost to stocks and bonds may be relatively limited. Attached: the trend of China's stocks and bonds after the previous RRR reduction
Risk tips: the epidemic situation, policy implementation, conflict between Russia and Ukraine, tightening of the Federal Reserve, etc. exceeded expectations.
