Event:
On January 17, the 1-year MLF interest rate and 7-day Omo interest rate were reduced by 10bp.
Comments:
The rate cut was in line with the expectation and slightly exceeded the expectation at the time point, or due to the economic downturn at the beginning of the year and weak financing demand, MLF and Omo interest rates were cut by 10bp, and the range was in line with the expectation and slightly exceeded the supermarket expectation at the time point. In the report "LPR reduction, or just the beginning", we clearly pointed out that LPR reduction is the beginning of a new round of easing cycle. Reducing bank costs is the key to reducing entity financing costs and stimulating economic vitality; The interest rates of MLF and Omo were reduced by 10bp, which basically met the market expectations. At the same time of "price reduction", the central bank continued to "add water". On the basis of the overall RRR reduction last month, the MLF invested an excess of 200 billion yuan this month, highlighting the policy "afterburner" attitude. The interest rate cut at the current time point may be due to factors such as the economic downturn at the beginning of the year and the accelerated contraction of demand. The recently released economic data for December show that the decline of real estate investment and consumer demand has accelerated, and the export has also fallen from a high level; With the weakening of demand, employment pressure has increased significantly, and the unemployment rate of young people has reached a record high in the same period. High frequency data show that the initial production and demand of the year are relatively low, and the cement shipment rate and commercial housing sales are lower than those in the same period of 2021; The bill market shows that the "good start" of credit at the beginning of the year may be relatively general, and the bill transfer interest rate is at a low level in the same period in history.
One year's LPR decline may be the next step, and five years does not rule out the possibility of reduction. Interest rate reduction or not the end point. One year's LPR decline will be the next step, and five years' LPR does not rule out the possibility of reduction. Under the framework of current LPR anchored MLF interest rate, the decline of MLF interest rate will lead to the decline of LPR, and the LPR quotation in one year may decrease by 10bp; However, the changes in LPR over the past five years may need to consider the balance of stimulating entity demand and adhering to the positioning of housing, housing and non speculation. The possible direction is to reduce the amplitude and increase the extent of targeted reduction on enterprise loans. This interest rate cut may not be the end of a new round of monetary easing cycle. Experience shows that the monetary easing cycle often appears in the stage of economic pressure, and the reserve requirement and interest rate will be reduced for many times; In the new round of easing cycle starting at the end of 2021, the reduction of reserve requirements and interest rates have been implemented. Under the contraction of demand, there may still be further monetary easing. The pace and intensity of subsequent easing may depend on the effect of steady growth. While liquidity is loose, the central bank may continue to use refinancing and direct tools to guide financial institutions to increase key support for small and micro enterprises, scientific and technological innovation, green development and other fields.
The policy "reinforcement" needs a "combined fist", the "policy bottom" is now, and the "economic bottom" is about to appear
Steady growth comes first, and monetary policy "reinforcement" needs a "combination fist". Steady growth requires the joint efforts of monetary, fiscal, financial institutions and state-owned enterprises. The growth rate of broad fiscal expenditure in 2022 is higher than that of last year, which is still not a fiscal year. In addition to the fiscal front, carry over balance and central deficit, it may also need the assistance of policy financial institutions and market-oriented financing of high-quality state-owned enterprises. Under the financing "accumulation of power", the reserve projects will accelerate the commencement, or drive the gradual release of demand and hedge the downward pressure on the economy (for details, see the clue of infrastructure development from the change of special bonds). With steady growth, the "policy bottom" has been consolidated, and the "economic bottom" may soon appear, maintaining the judgment that the economy bottomed out before and after the first quarter. During the "three steps" of steady growth: the first step is to accelerate the growth of financing related to monetary easing and steady growth; The second step is to accelerate the implementation of measures related to steady growth and drive the improvement of physical demand. The marginal improvement is expected to be the most obvious in the second quarter; Step 3: economic expectations are restored and GDP growth returns to a reasonable range of 5-5.5%.
Risk tip: the policy effect is less than expected.
