Event: the people's Bank of China authorized the national interbank lending center to announce that the quoted interest rate (LPR) of the loan market on May 20, 2022 is: 1-year LPR is 3.70%, and more than 5-year LPR is 4.45%. Among them, the LPR over 5 years is 15 basis points lower than the last time.
Core view: the LPR over the five-year period is 15 basis points lower than the last time, and the reduction of loan interest rate is significantly higher than the market expectation, which mainly reflects the increasing pressure on the real economy and urban employment under the disturbance of repeated epidemic and other internal and external factors, and the financing data representing the expectation of the real sector also shows an overall slowdown trend. At the same time, the sharp contraction of financing in real estate and other sectors will also gather financial risks to a certain extent. Therefore, there is a need for unconventional and effective policies to reverse the expectations of residents and enterprise departments as soon as possible and help residents and enterprise departments rebuild confidence.
The sharp decline of loan interest rate can significantly reduce costs and improve the balance sheet. It can also reverse the expectations of the real sector and stimulate the consumption and investment willingness of micro entities to a certain extent. However, the complete reversal of the expectations of the real sector still needs more supporting policies on the demand side to be implemented as soon as possible. We expect that monetary policy will remain loose and decide whether to further guide the LPR downward depending on the disturbance of the epidemic to the economy.
I. the pressure on the real economy and urban employment is increasing. Financing data show that residents and enterprise sectors are expected to continue to weaken, and extraordinary measures are needed in extraordinary times
Disturbed by internal and external factors such as repeated outbreaks in China, the pressure on the real economy and urban employment is increasing, and the financing data representing the expectation of the real sector also shows a comprehensive slowdown. Under the background of the expected slowdown of the real estate sector and the external demand of non residents, it means that the confidence of enterprises in the internal and external financing sectors may be reversed as soon as possible. Meanwhile, in April, the central bank led the establishment of a market-oriented adjustment mechanism for deposit interest rates, which has helped commercial banks and other financial institutions reduce the cost of deposit liabilities by 10bp and reserved sufficient space for a substantial reduction in loan interest rates.
Under the disturbance of China's epidemic, the recession pressure on the real economy and urban employment is becoming increasingly prominent. Since March, China's epidemic has disturbed economic centers such as Guangdong, Shanghai and Beijing. The epidemic prevention and control will inevitably have a negative impact on offline production, circulation and consumption. The manufacturing PMI, which represents the prosperity of the real economy, began to weaken in March and fell sharply in April. Under the background of the cyclical slowdown of external demand and the sudden contraction of domestic demand disturbed by the epidemic, the real economy data in April basically weakened in an all-round way. At the same time, the phased pressure faced by the real economy began to transmit to the employment end. The unemployment rate in March began to rise significantly beyond the seasonality. The unemployment rate in April even exceeded the same period in 2020. Close to the worst period of the epidemic in 2020, the pressure on China to stabilize growth and ensure employment has increased significantly.
The pressure on the real economy and urban employment is reflected in the financing data, that is, the financing data slowed down in April. At the same time, enterprises and residents are the main body of social financing, and the government financing is difficult to support. Under the disturbance of the epidemic, the real economy is under overall pressure, and the willingness of the enterprise sector to invest and expand production and the willingness of the resident sector to consume and buy houses have shrunk significantly. In terms of financing data, the pulling effect of the enterprise sector on new financing has shrunk significantly month on month, and the resident sector has maintained drag for six consecutive months, and the drag degree has continued to widen.
The financing data is not only the reflection of the real economy at the financial level, but also represents the expectations of the real economy sector for the economic outlook. The willingness of the enterprise sector to increase leverage is low, and the resident sector actively shrinks the balance sheet, which reflects the doubts of the real economy sector about the economic outlook to a certain extent. At the same time, according to the social finance data since 2017, the new financing of government departments accounts for only 21.2% of the new social finance, the resident sector accounts for 25.2% and the non-financial enterprise sector accounts for 53.6%. Therefore, if we want to stabilize the credit increment, the effectiveness of government departments is relatively small, and the key is to reverse the pessimistic expectations of residents and enterprise departments.
The expected reversal of residents and business sectors requires strong policies, and extraordinary policies are needed in extraordinary times. Since 2020, the covid-19 pneumonia epidemic has lasted for more than two years, which has had a significant impact on the production, operation and consumption expectations of residents and enterprise departments. The superposition of the regulatory policies in the real estate field since August 2020 has also increased the house purchase wait-and-see mood of residents to a certain extent. To a certain extent, it may take a long transmission time for conventional policies and measures to gradually restore the confidence of residents and enterprise departments from landing to effective. However, under the background of simultaneous slowdown of domestic and foreign demand, slowing down in some areas may mean the accumulation of financial risks to some extent. Therefore, at present, it is more necessary to adopt unconventional and effective policies to reverse the expectations of residents and enterprise departments as soon as possible and help residents and enterprise departments rebuild confidence.
In April, the central bank led the establishment of a market-oriented adjustment mechanism for deposit interest rates, which has helped commercial banks and other financial institutions reduce the cost of deposit liabilities by 10bp, and the banking system has sufficient space to reduce loan interest rates. Ideally, in an effective market-oriented interest rate system, the central bank will guide and adjust the inter-bank market interest rate through policy interest rates such as open market operation interest rate and refinancing rediscount interest rate, so as to affect the deposit interest rate and other debt interest rates of financial institutions, and then affect the loan interest rate of financial institutions.
However, in reality, due to the fierce competition in the deposit market, the interest rates of time deposits and certificates of deposit of many commercial banks are very close to the upper limit of self-discipline. To some extent, this hinders the transmission from the inter-bank market interest rate to the deposit interest rate, and makes the policy interest rate unable to effectively affect the deposit interest rate.
The comprehensive liability cost of commercial banks can be divided into three parts: the first is the cost of deposit liabilities, the second is the cost of inter-bank liabilities, and the third is the cost of other liabilities. The blocking of the transmission from policy interest rate to deposit interest rate makes the central bank can only affect the comprehensive debt cost of commercial banks through inter-bank market interest rate and other debt interest rate when reducing the policy interest rate, while the deposit debt cost, which accounts for the majority of the comprehensive debt cost of commercial banks, is not affected, and the transmission efficiency of monetary policy is greatly reduced.
Therefore, in the monetary policy implementation report of the first quarter of 2022, the central bank said that in April 2022, the people's Bank of China guided the interest rate self-discipline mechanism and established a market-oriented adjustment mechanism for deposit interest rate. The member banks of the self-discipline mechanism reasonably adjusted the deposit interest rate level with reference to the bond market interest rate represented by the yield of 10-year Treasury bonds and the loan market interest rate represented by 1-year LPR, The people's Bank of China has given appropriate incentives to timely and efficient financial institutions for the market-oriented adjustment of deposit interest rates, further unblocking the transmission path from policy interest rates to deposit interest rates. According to the research data of the central bank, in the last week of April (from April 25 to May 1), the weighted average interest rate of new deposits of financial institutions across the country decreased by 10 basis points compared with the previous week. (see the Research Report "different interest rate cuts, deposit interest rate reform - Comments on the implementation report of monetary policy in the first quarter of 2022" released on May 9 for details)
II. The key to effective cost reduction lies in the implementation of supporting policies as soon as possible
The quoted interest rate of LPR with a term of more than 5 years is the anchor of medium and long-term loan interest rate. The main related loans include housing mortgage loans, medium and long-term manufacturing loans and supporting loans for infrastructure construction. The sharp decline of loan interest rate will significantly reduce costs and improve the balance sheet. It will also reverse the expectations of the real sector and stimulate the consumption and investment willingness of micro entities to a certain extent. However, the complete reversal of the expectations of the real sector still needs more supporting policies on the demand side to be implemented as soon as possible.
On the enterprise side, on the one hand, under the background of overweight and landing of major projects around the country and accelerated issuance of government bonds, the sharp reduction of the quoted interest rate of more than five-year LPR will stimulate the willingness of private capital to participate in the construction of infrastructure projects to a certain extent. Second, under the background of the decline of export boom and the repeated epidemic in China, real enterprises have entered the destocking stage, their willingness to invest and expand production is low, and the decline of medium and long-term loan interest rates also helps to stimulate the vitality of micro entities, but the effectiveness may be limited under the background of slowing demand.
On the residential side, on the one hand, the decline of housing mortgage loans will stimulate the purchase intention of residents' departments to a certain extent, but if it is to be effective, it is also necessary to further support the reasonable housing demand of residents' departments and relax real estate to a greater extent according to local conditions on the basis of "housing without speculation". Therefore, we can see that before the decline of the quoted interest rate of LPR over five years, the central bank and other ministries and commissions also issued the notice on issues related to the adjustment of differentiated housing credit policies on May 15. For resident families who borrow to buy ordinary self owned housing, the lower limit of the interest rate of the first commercial individual housing loan is adjusted to not less than the quoted interest rate of the loan market of the corresponding period by 20 basis points.
Second, the decline in the quoted interest rate of LPR for more than five years can not only reduce the housing mortgage loan interest rate of new buyers, but also reduce the housing mortgage loan interest rate linked to the quoted interest rate of LPR in the past, so as to reduce and improve the interest rate of previous buyers. It is pointed out that improving the balance sheet is conducive to stimulating consumer demand.
III. the subsequent loose space depends on the epidemic prevention and control
It is expected that monetary policy will remain loose and decide whether to further guide the LPR downward depending on the degree of disturbance of the epidemic to the economy. From the internal environment, the rebound degree of the current round of China's epidemic has converged. However, considering that the epidemic has still had a relatively obvious impact on economic growth and employment since March, the follow-up monetary policy will still focus on creating a suitable liquidity environment for stable growth. At the same time, the constraints of internal and external balance and price stability on monetary policy will become increasingly apparent. In this context, we believe that monetary policy will act in two directions according to the degree of disturbance to the economy caused by the subsequent epidemic.
On the one hand, depending on the degree of disturbance of the epidemic to the economy, decide whether to further guide the LPR downward. First, through the market-oriented adjustment mechanism of deposit interest rate, guide the downward movement of the floating upper limit of deposit interest rate; Second, while maintaining the stability of policy interest rates, inter-bank repo and lending rates are maintained at a relatively low level through quantitative tools. At the same time, while the quoted interest rate of more than five-year LPR declines, the quoted interest rate of one-year LPR remains unchanged, which may be mainly due to the low pressure on new short-term loans, which also indicates to a certain extent that the space for the further decline of the optimal customer loan interest rate may be limited. Therefore, whether the subsequent LPR quotation interest rate will further decline, we think it may depend more on the degree of economic disturbance caused by the epidemic.
On the other hand, we will actively launch more structural monetary policy tools and increase financing support for manufacturing, service, small and micro enterprises and intermediate links seriously affected by the epidemic, including increasing the amount of special refinancing and reducing the interest rate of special refinancing.
Risk tips
The implementation of the policy was not as expected, and the local epidemic of covid-19 pneumonia spread widely.
