Event:
On January 17, the central bank announced that in order to maintain the reasonable and abundant liquidity of the banking system, it carried out RMB 700 billion one-year MLF operation and RMB 100 billion seven-day open market reverse repurchase operation on January 17. The bid winning interest rates were 2.85% and 2.10% respectively, and the bid winning interest rates decreased by 10 basis points.
Comments:
In our previous report, we repeatedly mentioned that the policy goal of counter cyclical regulation is to broaden credit, while wide currency is a tool. Wide credit requires wide currency to play a leading role. It is expected that the first quarter will be the intensive landing period of counter cyclical regulation policies, and there is still room for reducing reserve requirements and interest rates. The central bank cut interest rates this time, and the broad monetary expectation was fulfilled.
This week, 50 billion yuan of reverse repo will expire in the central bank's open market, and 10 billion yuan will expire from Monday to Friday; In addition, another 500 billion yuan of MLF expired on Monday, so the central bank's operation is an excess continuation, accompanied by the reduction of policy interest rates. Due to the large liquidity gap in the market before the holiday in January, the central bank increased capital investment to maintain a reasonable and sufficient liquidity within expectations. However, the market had insufficient confidence in whether the interest rate cut expectation could be fulfilled, so the interest rate cut slightly exceeded the market expectation.
The follow-up question is whether there is room for broad money and whether there will be continuous interest rate cuts. We can refer to the loose operation of the central bank after the outbreak of the epidemic in 2020. At that time, in order to deal with the great uncertainty caused by the impact of the epidemic, the central bank reduced the 7-day reverse repo interest rate twice in early February and at the end of March, by 10bp and 20bp respectively. After the two reductions, the one-year MLF interest rate also decreased by the same margin. If the interest rate cut is regarded as a new round of easing cycle, there may still be room for interest rate reduction after the interest rate cut of 10bp. However, if the interest rate cut is regarded as a continuation of the interest rate cut in 2020 and as a large interest rate cut cycle, the range and environment of interest rate cut need to be considered as a whole. When the interest rate was cut in 2020, the internal environment was the outbreak of the Chinese epidemic, the market lacked response experience and there was panic, which required the central bank to actively respond to alleviate the liquidity risk, while the external environment was that after the outbreak of the overseas epidemic, the Federal Reserve also began to enter a large-scale easing cycle, providing a relaxed external environment for China. However, the central bank chose to take a very restrained attitude towards easing, and began the marginal adjustment of policy in May 2020. It can be seen that the interest rate cut in April 2020 corresponds to the bottom of the one-year AAA interbank deposit certificate interest rate. Since then, with the return of monetary policy to normalization, the interbank deposit certificate interest rate has bottomed out and rebounded. Therefore, looking back, the 20bp interest rate cut in April 2020 corresponds to the easing of the bond market.
At present, the downward pressure on China's economy has increased again, and the policy has released a clear counter cyclical regulation signal. Therefore, we have always expected to cut interest rates. At the same time, we believe that the space for easing is relatively limited. On the one hand, the Federal Reserve has begun to enter the tightening cycle, which is completely contrary to the environment in 2020. The adjustment of China's policy needs to consider the internal and external balance. On the other hand, the policy tone of not flooding, not speculation in housing and housing, and maintaining the stability of macro leverage ratio has not changed, which means that the wide currency in 2022 can only move in a limited space. Therefore, we believe that under the condition that China's policy space is limited, the subsequent central bank may adopt a step-by-step model to observe the promotion of credit liberalization after monetary liberalization, and consider further monetary liberalization if it is not ideal. This means that although the possibility of continuing to cut interest rates can not be denied, after the interest rate cut is realized, continuing to bet that continuous interest rate cuts in the short term will face high uncertainty. The bond market may need to be more vigilant about the phased benefits and risks after the interest rate cut is realized, and the follow-up needs to continue to closely track the actual performance of economic data and official policy guidelines.
In December last year, the 1-year LPR interest rate decreased slightly by 5bp, corresponding to the cumulative impact of the two RRR reductions last year. After the MLF interest rate is lowered this time, the LPR interest rate is expected to be lowered again this month. After the two MLF interest rate cuts in 2020, the LPR interest rate will be reduced. The reduction range of one-year LPR interest rate is the same as that of MLF, and the reduction range of five-year LPR will be halved. The same model may be adopted for the LPR reduction this month.
It should be noted that reverse repo and MLF interest rates, as policy interest rates, correspond to the cost of obtaining funds from the central bank and the liability side interest rate of the bank. The reduction of interest rate belongs to the category of wide currency, while LPR interest rate corresponds to the cost of obtaining funds from the Bank and corresponds to the asset side interest rate of the bank. The reduction of interest rate belongs to the category of wide credit. Therefore, if the subsequent LPR interest rate reduction is realized, the direct benefit is wide credit, which will put pressure on the bond market, but good for the stock market. It is expected that the focus of the follow-up market is expected to shift from wide currency to wide credit. In the stage of wide credit, we can give more confidence in the performance of the stock market.
