What does it mean for the economy and markets? With the global interest rate cut and easing, what other policies will China offer?
Targeted quasi-dropping releases 550 billion yuan, which is good for stock companies. Is the rate cut still far?
On March 13, the People's Bank of China announced that in order to support the development of the real economy and reduce the actual cost of social financing, it decided to implement the inclusive financial targeted reduction on March 16, 2020, and targeted the banks to meet the assessment standards by 0.5 to 1 Percentage points. In addition, the qualified joint-stock commercial banks will be further reduced by 1 percentage point to support the issuance of loans to the inclusive financial sector. The above-mentioned targeted RRR cuts totaled 550 billion yuan of long-term funds.
What does it mean for the economy and markets? With the global interest rate cut and easing, what other policies will China offer?
Directional downgrade favors stock houses
In the previous two years, the dynamic assessment of inclusive financial targeted reductions was set on January 25 of the beginning of the year. Affected by the epidemic this year, preliminary work such as data collection may be delayed. After the National People's Congress on March 11 made a clear request, this year's inclusive finance targeted lowering. The scale of funds released after the dynamic assessment in 2019 is 270 billion yuan. Considering that the growth rate of small and micro enterprise loan balances under the Pratt & Whitney caliber has increased significantly since last year, this year's dynamic assessment of the scale of the targeted reduction of Pratt & Whitney finance has increased to 400 billion yuan.
The agency believes that, as a major component of the recent structured monetary policy, the dynamic assessment of inclusive financial targeting will continue to be implemented in the future, which means that there is still room for further improvement in the credit financing environment for small and micro enterprises.
In response to the additional reduction in the shareholding banks, Wang Qing, chief macro analyst of Dongfang Jincheng, told reporters that there may be three main reasons: First, in China's banking system, compared with state-owned banks, city commercial banks and rural commercial banks, The deposit-to-loan ratio of joint-stock banks is at the highest level. This means that in the process of increasing credit, joint-stock banks face greater constraints on the source of loanable funds, and additional RRR cuts will directly improve the credit-supply capabilities of joint-stock banks.
Secondly, compared with deposits and wholesale financing in the open market, the additional reduction is equivalent to providing a joint-stock bank with a near zero cost of funding. This will, to a certain extent, encourage these banks to lower their lending rates to enterprises, which is in line with the current policy goal of reducing the financing cost of the real economy. Finally, compared with state-owned banks, joint-stock banks have more SME customers. In this sense, additional reductions are actually a targeted reduction in support of SMEs.
With the implementation of the targeted reduction of inclusive financial regulations, and the additional reduction of shareholding banks by this implementation, the current regulatory support for SMEs is increasing. However, this may also mean that the probability of a full-scale reduction in the short term is decreasing.
On January 6, the central bank lowered the reserve requirements for large and small banks from 13.0% and 11.0% to 12.5% and 10.5%, respectively. After the outbreak of the new crown pneumonia epidemic, the central bank provided 800 billion yuan of funds to commercial banks through refinancing and rediscount windows.
Lu Ting, chief economist of Nomura China, told reporters that the currency and credit data in February was lower than expected. Although the decline was mainly due to seasonal factors, the sharp decline in new undiscounted bank acceptance bills and the new yuan in the household sector. Loans recorded historical lows, reflecting the very weak credit demand in the market due to the new crown pneumonia epidemic and slow recovery. "In order to reduce the impact of the epidemic on the economy, on February 25, the central bank introduced a 500 billion re-loan, rediscount line and 350 billion policy bank loan line, plus this inclusive financial targeted reduction, we expect March New loans and social finance data will rebound. "
MLF, deposit benchmark interest rate cuts to be observed
Will interest rate cuts come down after the RRR cut?
Institutions generally believe that the one-year LPR (loan quote interest rate) quote on March 20 may be reduced by 5-10bp. Recently, the interest rate of funds in the open market continues to be low, which can provide support for commercial banks to lower their LPR prices.
In terms of policy interest rates, it is expected that the MLF (Interim Lending Facility) interest rate will also be lowered by 10bp in the second quarter, which will lead the LPR price to continue to decline. However, Wang Qing also mentioned, "Considering that the central bank has already lowered MLF and the open market reverse repurchase policy interest rates in February, from the perspective of grasping the policy rhythm, the bidding interest rate may also remain unchanged during the MLF operation this month. . "
Lu Ting predicts that the government will introduce more policies in the coming months, including injecting liquidity into the market through MLF and RRR cuts, helping to extend debt through borrowing facilities such as mortgage supplementary loans (PSL), as well as tax and fee reductions and reductions. Measures such as interest expenses and cuts in utility costs.
Last week, both the United States and Canada were cut by 50bp. The market expects the Fed to cut interest rates by another 50 ~ 75bp next week. On Wednesday, the Bank of England cut interest rates by 50bp on the 11th. On the same day, the British government announced a 30 billion pound fiscal stimulus package. However, the European Central Bank did not cut interest rates on Thursday, but will further deepen the QE. But there is also logic in not cutting interest rates.
Anna Stupnytska, head of global macroeconomic analysis at Fidelity International, told reporters that the ECB ’s decision this time not to cut interest rates but to launch more targeted stimulus measures is a wise move. "The absence of interest rate cuts indicates that the European Central Bank has chosen to change its past response to this unexpected economic shock and has demonstrated the flexibility of using monetary policy. The European Central Bank has chosen to focus on the economic sectors that need support. Quantitative easing for corporate bonds and the introduction of attractively targeted long-term refinancing clauses at the same time can stimulate banks to lend from the central bank to companies in need. This is undoubtedly a step in the right direction. "Previously, China The central bank's policies are also more structured and designed to provide sufficient liquidity for related companies.
In addition, various circles believe that from the perspective of economic stability, the need to lower the benchmark deposit interest rate is increasing. In February this year, the core CPI excluding food and energy has dropped to 1.0% year-on-year, which is at a significantly lower level. This means that the risk of lowering interest rates to trigger general inflation is small.
However, the opposing view is that China should promote the process of market-based interest rates and not continue to adjust the benchmark interest rate. At the same time, as "pig inflation" drives food prices higher, the current overall CPI is still at a high level of more than 5.0% year-on-year, and it is estimated that it will be difficult to fall below 3.0% in the first half of the year. At present, the benchmark interest rate for one-year deposits is 1.5%. After taking into account the floating ratio of 30% to 40%, the actual deposit interest rate is still in the state of negative interest rates. At this time, the interest rate reduction will not only save the interests of savers, but also may exacerbate the phenomenon of deposit removal and financial disintermediation.
In addition, the benchmark interest rate for deposits is the "ballast stone" of China's interest rate system. "Once the adjustment has a huge impact, it may change market expectations, and it is necessary to prevent asset bubble risks such as a rapid rise in house prices." Wang Qing said.
However, Nomura believes that due to the impact of strict anti-epidemic measures on the economy and the risk of overseas recession, China needs countercyclical policy support. The government is expected to reduce the benchmark one-year deposit interest rate by 25bp in the next few months, and the 2020 fiscal The deficit target is raised to 3.5% of GDP to promote final demand, otherwise the limited policy space will greatly reduce the scale of stimulus measures.
Goldman Sachs, Asia Co-Head of Goldman Sachs' Investment Strategy Group, told reporters that lowering the benchmark interest rate on deposits is not Goldman Sachs ’official forecast." But the Bank of China is expected to consider all monetary policy tools. Deposit rates are one of them. The central bank lowered MLF, After the LPR, the returns on the asset side of the bank have been reduced, so the central bank may also consider parallel reductions in the interest rate on the liability side to ensure that the width of the interest rate corridor remains the same. "
Author: 4. Alina Cho