Event description
On May 20, the one-year LPR was flat at 3.7%, and the LPR over five years was reduced from 4.6% to 15bp to 4.45%; On May 15, the lower limit of the first housing loan interest rate was lowered by 20 basis points, which means that the lower limit of the first housing loan interest rate was lowered from 4.4% to 4.25%.
Event review
Does the asymmetric downregulation of LPR meet expectations? The way and range of reduction were "unexpected". First of all, from the perspective of the reduction method, it is "reasonable" that the one-year MLF interest rate remained unchanged and the one-year LPR remained unchanged on May 16, but the one-year LPR remained unchanged and only the five-year LPR was reduced for the first time in history. Secondly, from the perspective of the reduction range, the one-time reduction of 15bp for the five-year LPR is also the first time in history. In fact, the single reduction range of the five-year LPR is mostly 5bp. Only in April 2020, the reduction range is large, but it is only 10bp. Therefore, the reduction range is also higher than expected.
Finally, from the perspective of the purpose of the reduction, the asymmetric reduction of LPR is a clear "interest rate reduction" in the real estate field.
Why is there a substantial real estate "interest rate cut" at the current time? In fact, since the Politburo meeting on April 29 made it clear that "we should pay close attention to planning incremental policy tools" and "support all localities to improve real estate policies from local realities", the regulatory position has been significantly more positive. On May 9, the central bank's goods policy report stressed "increasing support for the real economy". On May 13, the central bank made it clear that "the macro leverage ratio will rise". On May 15, the lower limit of housing loan interest rate was lowered. On May 18, the prime minister said that "the new measures that are accurate can be used up, and they can be put out in May". However, the question is what direction does the "incremental policy" focus on?
We are in-depth reporting "taking history as a mirror: where is the way to broaden credit?" It is proposed that monetary, fiscal and real estate are the ways to support the economy in history, but monetary and fiscal are too busy under the impact of the epidemic. ① First of all, in terms of money, since July 2021, the central bank has comprehensively reduced the reserve requirement for three times (a cumulative reduction of 1.25 PCT) and MLF (10bp) for one time. As of mid May, the central bank has handed over 800 billion profit balance (equivalent to a reduction of 0.4 PCT). The money supply has increased significantly. In April, the growth rate of M2 has risen to 10.5% over the same period. At present, dr001 and dr007 are at a low level of 1.4% and 1.6%, while the seven-day Omo interest rate is 2.1%, The market interest rate is significantly lower than the policy interest rate. However, the currency has not been effectively transmitted to credit. The credit demand of residents and enterprises is sluggish. In April, the new loans of the physical sector (residents + enterprises, excluding bills) turned negative for the first time in history. ② Secondly, from the financial point of view, we expect the land transfer revenue to decline by about 1.2 trillion this year, which is basically the same as the fund budget revenue in 2022, with a gap of about 10%. Moreover, the government will also implement a tax rebate and tax reduction policy of about 2.5 trillion on the revenue side, superimposing the impact of the epidemic and aggravating the financial pressure. Whether from the perspective of achieving the annual fund income target or from the policy perspective of introducing incremental policy, further regulation of real estate is imperative. Therefore, in conclusion, after the central government made a positive statement in April, the short-term monetary and fiscal incremental policies were limited, while the steady growth policy of real estate continued to increase.
Is there room for interest rate reduction in the future? We believe that the downward trend of interest rate is the general trend. Reducing LPR is only the beginning. It is possible to reduce MLF interest rate again in the future. We understand the downward trend of interest rate from the two aspects of entity and liquidity. First, at the entity level, economic growth determines the long-term interest rate trend, so the nominal GDP growth rate and interest rate trend converge. Under the impact of the epidemic, the nominal GDP growth rate in the second quarter may decline significantly, which means that there is still room for interest rates to decline. Second, at the liquidity level, residual liquidity is also an important factor affecting the trend of interest rate. The growth difference between social finance and M2 is positively related to the trend of 10-year Treasury bond interest rate. At present, the growth rate of social finance-m2 is in the downward channel, which also points to the trend downward of interest rate. Considering that the current growth rate of real estate sales, new construction and land transfer income has entered a negative range, the internal and external environment is highly similar to that from 2013 to 2015: December 2013 to October 2014 is the taper stage, and the first half of this year is the taper + significant and intensive interest rate increase, which restricts China's monetary policy; Monetary easing is driven by greater internal pressure and relaxation of external constraints. The central bank immediately cut interest rates in November 2014. Compared with the third quarter of this year, China's economic momentum may still be weak, while the easing of inflation pressure and the risk of recession may ease the Fed's interest rate increase. At that time, the environment for the central bank to reduce MLF interest rate may be more appropriate.
How to view the direction of subsequent asset allocation? Add leverage to drive a new round of asset rotation and speed up. Under the background of the repeated moves and stops of the US Federal Reserve and the Ukrainian asset policy, it can be said that the US Federal Reserve and the Ukrainian central bank are intertwined. At present, the steady growth of infrastructure is expected to "refuel in the air", and the asymmetric reduction of the five-year LPR in May has once again clarified the policy signal of steady growth of real estate. Although under the background of weakening expectations and shrinking demand, the "foresight" of economic fundamentals still needs to be resolved, and the arrival of the "economic bottom" still takes time, with the continuous improvement of liquidity, the "financial bottom" is being consolidated. In terms of asset allocation, moderate inflation and downward trend of interest rate are good for financial assets, so bonds still have strong allocation value. With the gradual realization of wide credit, the cost performance of stocks is also rising.
Risk tips
1. The Federal Reserve continues to raise interest rates substantially;
2. The policy tone has changed.
