Event: on May 20, 2022, the five-year LPR was reduced by 15bp to 4.45%, and the one-year LPR remained unchanged.
Core conclusion: in the face of the dual pressure of stabilizing prices and exchange rate, we can still greatly reduce the five-year LPR this time, in order to improve confidence and loosen real estate, which is expected to open the prelude to the “big gift bag” of subsequent stable growth, and more “incremental tools” are expected. Continue to remind that the “policy bottom” is now, and the “economic bottom and market bottom” may still need to be polished; In the short term, it is suggested to focus on three major policies: relaxation of real estate in core first and second tier cities, issuance of special treasury bonds and normalization. For large categories of assets, space is more important than time, so there is no need to be too pessimistic.
1. Only 5-year LPR has been reduced this time, which belongs to unilateral interest rate reduction; Reducing 15bp is close to the expected upper limit and the strongest one. Although the central bank has not lowered the MLF interest rate for four consecutive months on May 15, the market still has strong expectations for this LPR reduction, which is also in line with our prediction. In terms of range, it is generally expected to drop by 10-20bp, indicating that 15bp belongs to the upper limit of partial expectation, which is also higher than the historical decline (previously, it decreased 5-year LPR, 3 times 5bp and 1 time 10bp). 2. Why only lower LPR but not MLF? We have repeatedly suggested that there are two main reasons: on the one hand, the first quarter monetary policy implementation report of the central bank on May 10 adjusted the quotation mechanism of bank deposit interest rate, and pointed out that “the weighted average interest rate of new deposits in national financial institutions decreased by 10bp in the last week of April”, which indicates that the debt cost of banks has been reduced, which opens space for reducing LPR; On the other hand, the reason why MLF interest rate was not lowered should be that the current market interest rate has been significantly lower (the daily average level of dr007 since May is lower than 1.6%).
3. Why only reduce the LPR for 5 years instead of 1 year—— Aimed at loosening real estate, in theory, it is equivalent to a 35bp reduction in mortgage interest rates at the national level within a week. One year LPR corresponds to short-term loans, and five-year LPR corresponds to medium and long-term loans including mortgage interest rates. Since the creation of LPR in 2019, the one-year LPR has been reduced seven times, with a cumulative decrease of 61bp. This time, the five-year LPR has been reduced five times, with a cumulative decrease of 40bp. We have repeatedly suggested that one of the core tasks of steady growth is to avoid a “hard landing” of real estate, and real estate must be substantially relaxed. Previously, on May 15, the central bank and the China Banking and Insurance Regulatory Commission had lowered the lower limit of the housing loan interest rate by 20bp. Together with the 15bp reduction of the five-year LPR, it is equivalent to the 35bp reduction of the housing loan interest rate at the national level (the actual situation depends on the implementation of all localities).
4. Tend to think that in the face of the dual pressure of stabilizing prices and exchange rates, the interest rate cut can still be implemented, which is expected to boost confidence, open the prelude to the “big gift bag” of subsequent stable growth, and more “incremental tools” can be expected. On May 18, the Symposium on stabilizing growth, stabilizing market players and ensuring employment held by the prime minister pointed out that “all regions and departments should enhance their sense of urgency, tap the potential of policies, make sure that the new measures that are accurate can be used up, and do their best in May, so as to ensure that the economy operates within a reasonable range in the first half of the year and the whole year, and strive to make the economy return to normal track quickly”, In addition, a series of statements such as “strengthening macro policy adjustment; stepping up the planning of incremental policy tools” proposed by the Politburo meeting on April 29 point to that in the face of huge downward pressure on the economy, the follow-up policies will make every effort to stabilize growth. In terms of this interest rate cut, the central bank has just proposed to pay close attention to prices and the Fed’s interest rate increase, that is, monetary policy is facing the dual pressure of stabilizing prices and exchange rate. Finally, the interest rate cut is still higher than expected by 15bp, indicating that more policy “big gifts” are expected to be seen in the future.
5. Specifically, we can expect more “big gifts”. The key is to “optimize epidemic prevention and control, loosen real estate, expand infrastructure and strengthen policy implementation”. In particular, we should make every effort to stabilize confidence and expectations. In the short term, it is suggested to focus on three categories of policies: relaxation of real estate in core first and second tier cities, issuance of special treasury bonds and normalization.
> further loosening real estate is on the way, and more core first and second tier cities will gradually relax real estate: since the end of last year, we have continued to remind that we must loosen real estate in order to stabilize growth. Combined with the more positive attitude towards real estate at the meeting of the Political Bureau on April 29, we believe that further relaxation can be expected. In fact, so far, many provincial capitals such as Guangzhou, Chengdu, Nanjing, Changsha and Zhengzhou have been deregulated to varying degrees. It is expected that other core cities such as Hangzhou, Ningbo, Xiamen, Beijing, Shanghai and Shenzhen will probably follow up. The “lowest action” should be to reduce the mortgage interest rate, or adjust the down payment ratio, purchase, sale and loan restrictions.
> increase the possibility of issuing special treasury bonds: maintaining the previous judgment, the necessity of issuing special treasury bonds during the year has increased and the operation is completely feasible. It is expected to be large (it may exceed 1.5 trillion or even 2 trillion). In addition to repaying the 950 billion special treasury bonds due within the year, it may focus on epidemic expenditure, expanding infrastructure and promoting consumption.
> normalized nucleic acid is expected to be further popularized: Based on the calculation of the previous report, the cost of normalized nucleic acid is controllable and the effect is considerable. It is expected that the “sampling circle” in 15 minutes and normalized nucleic acid may gradually become the “required action” in all places. ginseng
According to the experience of Shenzhen, once the normalized nucleic acid is promoted at the national level, it is expected to significantly alleviate the impact of the epidemic on the economy. 6. Continue to remind that the “policy bottom” is now, and the “economic bottom and market bottom” may still need to be polished. Pay close attention to the “four balances”. Maintain the previous judgment: the current significant weakening of the economy and the disappearance of demand are not only trapped by the “epidemic”, but also lack of domestic demand and confidence. It is expected that the GDP growth rate in the second quarter should “break 4” or even “break 3”, and it is difficult to achieve 5.5% in the whole year. In the future, the end of the policy has been achieved. The “economic bottom and market bottom” mainly depends on the progress of the “four balances”, namely: “controlling the epidemic vs stable growth; loose real estate vs controlling house prices and economic transformation; grasping the implementation of vs change of office and accountability; stabilizing the external vs Russia Ukraine conflict, the Fed’s interest rate increase and contraction, and China US game”. Among them, the epidemic is the top priority.
7. Large categories of assets: space is more important than time. Don’t be too pessimistic. Stock: we should still attach great importance to the investment opportunities in the stable growth chain such as real estate and infrastructure, and pay close attention to the changes of market sentiment (confidence); Bonds: it is still a game of “wide credit vs wide currency”. The interest rate may fluctuate, with a top (about 3%) and a bottom (about 2.6%); Exchange rate: in the short term, the RMB is still under pressure, and 6.7-6.8 is an important point. Throughout the year, the RMB exchange rate should be stable in depreciation.
Risk tip: unexpected changes such as the epidemic situation, policy strength, Russia Ukraine conflict and the tightening of the Federal Reserve.
