Main views on liquidity this week
On January 17, the central bank launched RMB 700 billion MLF and 100 billion Omo reverse repurchase, and the bid winning interest rate decreased by 10 basis points. Our comments are as follows:
Why did the central bank cut interest rates sharply? First, the downward pressure on the economy has increased, and the demands for ensuring the main body, employment and people's livelihood have been further strengthened. China's economy is facing "triple pressure", flexible employment groups, individual industrial and commercial households, small and micro enterprises are facing potential pressure on employee employment security and wage payment, and the overdue rate of long tail customer group joint loans, consumer loans and other products is "warping". Among the recipients of unemployment benefits and insurance benefits, the proportion of middle-aged and young people has increased significantly, and the demands of protecting the main body, employment and people's livelihood have been further strengthened. It is necessary to reverse market expectations through greater easing policies. Second, since January, the credit supply has not been ideal, and some micro entities have taken the initiative to shrink the table. The effect of a small interest rate cut on the improvement of market expectations is relatively limited. The MLF is reduced by 10bp to reverse the pessimistic market expectations and stimulate the recovery of effective demand of the real economy by releasing a more powerful easing signal. Third, the market has strong "front" expectations for the Fed's interest rate increase. The central bank chose to cut the MLF interest rate in January, which is also a relatively stable window period. However, under the current "I-oriented" policy guidance, external factors are not the main constraints of the central bank's policies. Fourth, since January, there have been signs of marginal convergence in the capital of the banking system. Even the traditional capital financing out of large banks has also increased the cross month capital integration.
The impact of the central bank's interest rate cut on the banking system and financial markets. First, reduce the "disintermediation" of deposits and improve the debt cost of the banking system. After the interest rates of MLF and Omo are reduced by 10bp at the same time, it will help to reduce the market capital cost of banks, guide the decline of the yield of MMF, cash management wealth management and other products, reduce the "disintermediation" of deposits, and indirectly improve the debt cost of the banking system. Second, the broad-spectrum interest rate center on the market side will move down, and the bond market will be in a state of "near worry free and far worry". It is not ruled out that the long-term interest rate will have a phased correction of "good out", but after the correction, the cost performance of bond assets will improve, which is an opportunity to increase positions moderately, and the monetary policy is "easy to loosen but difficult to tighten". For banks, the 10Y treasury bond yield is attractive when it is at 2.85%. Third, the focus is to improve the pessimistic expectations of micro subjects. The interest rate cut is relatively large, which helps to reverse the pessimistic market expectations to a certain extent, stimulate the recovery of enterprise investment demand and residents' consumption demand, and improve the risk preference of micro subjects. The follow-up focus is to promote the recovery of credit demand. Fourth, we are more optimistic about the performance of high-quality urban rural commercial banks in economically developed areas. The interest rate cut is expected to be sufficient, and there is no significant adjustment in the banking sector. At the same time, the loan interest rate of small and medium-sized customers of local corporate banks is more viscous. Since this year, the credit supply of high-quality urban rural commercial banks in Jiangsu and Zhejiang has continued the trend of "booming supply and demand", the non-performing rate has continued to operate at a low level, and the interest rate cut has relatively little impact on the return on assets and Nim of such banks.
LPR continues to cut interest rates. (1) It is expected that 1y-lpr will be reduced by 5-10bp and 5y-lpr by 5bp on January 20. From the law of MLF interest rate adjustment and LPR quotation change, MLF interest rate has been reduced by ≥ 10bp twice, that is, in February and April 2020, 1y-lpr and 5y-lrp have been reduced, and the reduction ratio is 2:1. After the 10bp reduction of 1y-mlf interest rate, it is expected that 1y-lpr and 5y-lpr will both decrease on January 20, with the former range of 5-10bp and the latter range of 5bp. (2) Interest rate cuts and the recovery of credit growth cannot be completely equated. "Stabilizing credit" needs the cooperation of other policies. Recently, the people's Bank of China has continuously promoted the "jogging" of interest rate reduction, which is still restrained compared with the policy interest rate adjustment of 25bp before LPR reform. We have repeatedly stressed that unless a strong signal is released, stimulus monetary policy will be effective in stimulating demand and reversing expectations; Otherwise, at this stage, a small signal is not a "sufficient and necessary condition" for stabilizing credit. In the future, policies need to give play to the joint force of "several lifting" and rely on the central bank to "fight alone" for fear of "being lonely and difficult to support". The next stage of "stabilizing credit" requires the coordination and adjustment of industrial policies, especially the expansion of real estate demand and the development of infrastructure investment, so as to promote the financing demand of Bank projects and alleviate the pressure of "asset shortage".
Risk analysis: the downward pressure on the macro economy is increasing, and the credit easing is less than expected.
