Key investment points:
Event: on May 20, the central bank announced the LPR in May, and the one-year LPR was 3.7%, which was the same as that in the previous period; The LPR over 5 years was 4.45%, down 15 BP compared with the previous period.
Different from the previous asymmetric interest rate cut. Since the LPR reform in August 2019, the one-year LPR has remained unchanged for the first time, and the LPR over five years has been reduced. At the same time, the reduction range of 15 BP has also reached a new high since the reform. The past five asymmetric interest rate cuts have led to the expansion of the 5-year and 1-year LPR interest margin from 0.6% to 0.9%, and the interest margin has narrowed to 0.75% after this adjustment.
The reduction of LPR over 5 years exceeded market expectations. Previously, the market was generally expected to be affected by the comprehensive reduction of the reserve requirement by 0.25 percentage points in April, the profit turned over by the Central Bank of 800 billion yuan (equivalent to the reduction of the reserve requirement by 0.4 percentage points) and the reduction of the upper limit of deposit interest rate by 10 BP. With reference to the experience of last December, LPR was likely to be reduced in May. Finally, the 1-year LPR remained unchanged, while the 5-year LPR was reduced by 15 BPs, exceeding market expectations. We believe that the main reasons behind: (1) as the downward pressure on real estate is still large, reducing the LPR interest rate over 5 years will play a more positive role in stabilizing the confidence of the real estate market; (2) The one-year LPR mainly anchors the MLF interest rate of the same period. The central bank did not reduce the MLF interest rate when continuing the MLF in that month. In addition, the tightening of monetary policy of the Federal Reserve and the inflationary pressure imported from overseas have compressed China’s monetary policy space to a certain extent; (3) The adjustment of the upper limit of deposit interest rate mainly led to the reduction of the bank’s deposit interest rate for more than one year by 10 bp, which mainly reduced the bank’s long-term liabilities from the perspective of term matching.
The marginal real estate policy was relaxed, and the LPR cut boosted confidence. Since the beginning of the year, the purchase and loan restrictions and other real estate policies in many places across the country have begun to loosen to a certain extent, but the downward trend of real estate investment and sales has not stopped. In April, the medium and long-term loans of the residential sector even appeared the phenomenon of deleveraging, and the market’s expectation and confidence in real estate are still insufficient. Under the influence of external factors, there is a high probability that exports will fall this year. At the same time, China’s epidemic has also had a significant impact on the economy since the second quarter. Under the background of economic restructuring, although real estate can not become the starting point of stimulating the economy in the short term, due to the long upstream and downstream industrial chain and large volume, stabilizing real estate is still very important for achieving stable growth throughout the year. Previously, on May 15, the central bank adjusted the differentiated housing credit policy. Cities where the loan interest rate of the first house has reached the lower limit have opened 20 BP downward space, mainly for incremental just needed housing loans. The 15 BP reduction in LPR over 5 years will have an impact on the increment of stock. The loan interest rates of the first and second homes can be reduced. Combined with the two adjustments, the loan interest rate of the first house in some cities may be reduced to 4.25%. In addition to substantially reducing the debt pressure for home buyers, it is more important to boost confidence and promote the long-term benign development of the real estate market.
LPR may still be lowered in the next five years. From historical experience, the reduction of mortgage interest rate has an obvious relationship with the real estate cycle. The mortgage interest rate in the first quarter was 5.49%. Even after taking into account the 15 BP reduction this time, there is still a certain downward space with reference to the bottom 4.5% of the last round of mortgage interest rate. Although we can promote the decline of the overall mortgage interest rate by adjusting the lower limit of the loan interest rate of the first and second homes, it may not be as strong as directly adjusting the LPR. Judging from the interest rate difference between one-year and five-year LPR, there is still a distance of 15 BP from the 60 BP at the beginning of the reform. In addition, the expectation of stabilizing real estate may not be in place in one step, and further measures are still needed to protect the market.
There is still room for follow-up monetary policy. Although the monetary policy still emphasizes “focusing on me”, the first quarter monetary policy implementation report mentioned “two close concerns”. One is the imported inflation pressure, and the other is the monetary policy adjustment of major developed economies. From the perspective of aggregate policy, there is still room, but it is subject to certain restrictions. Combined with the previous establishment of a number of refinancing instruments and the separate reduction of LPR over 5 years, structural policy or short-term policy focus. At the same time, the current money market interest rate reflects the current situation of abundant liquidity, in which the weak actual financing demand may be the main reason. Therefore, at present, the focus is to broaden credit, but it also needs to increase the support of wide currency. In addition, it should be noted that in order to stimulate China’s demand, the possibility of strengthening the follow-up fiscal policy cannot be ruled out. At that time, if special treasury bonds are issued and the issuance peak of special bonds is superimposed, there may be a certain gap in liquidity, and the aggregate policy may still be overweight.
In general, for the equity market, the policy bottom is more solid, the measures to stabilize growth continue to increase, the economic bottom and market bottom will gradually approach, and we can continue to pay attention to the investment opportunities in the direction of stable growth. For the bond market, we may still need to pay attention to the game between wide credit and wide currency in the short term, and the yield of ten-year Treasury bonds is more likely to remain volatile.
