Interpretation|The State Council will release a signal of timely RRR cut: why, when and how?

  The market ushered in a major signal about monetary policy.

  The State Council executive meeting held on July 7 proposed that in response to the impact of commodity price increases on the production and operation of enterprises, it is necessary to maintain the stability of the monetary policy, enhance the effectiveness, and apply RRR cuts in a timely manner on the basis of not engaging in flood irrigation. Monetary policy tools have further strengthened financial support for the real economy, especially small, medium and micro enterprises, and promoted a steady decline in overall financing costs.

  In fact, the discussion on RRR cuts in the market is not strong right now.

The last time the central bank used the renminbi deposit reserve tool was in April 2020 announcing a targeted RRR cut for small and medium-sized banks.

  Wen Bin, chief researcher of China Minsheng Bank, believes that there is still room for RRR cuts. “From the perspective of base currency injection, the former mainly used foreign exchange to obtain funds, but now it is more dependent on the medium-term lending facility (MLF), etc., compared to the RRR cut. In terms of MLF's short term, there is a certain cost of capital. Therefore, the release of long-term liquidity through the RRR cut can help commercial banks to better manage their assets and liabilities."

  Wen Bin also said that the current LPR has been unchanged for 14 consecutive months, and commercial banks have high debt costs. To reduce the costs of enterprises, especially small and medium-sized enterprises, it is necessary to reduce the debt costs of banks. The RRR cut is for banks, especially small and medium-sized banks. Release of long-term funds will help reduce the financing costs of enterprises.

  Li Chao, chief economist of Zheshang Securities, believes that the easing signal released by the State Council this time, "using monetary policy tools such as RRR cuts in a timely manner", is essentially to hedge the impact of rising commodity prices on the production and operation of enterprises.

In the future, bulk commodities may continue to be at a high level. Due to the recent increase in the price of upstream raw materials, it is difficult to smoothly transmit to the consumer side, which will cause the cost of mid- and downstream companies to squeeze the profits of mid- and downstream companies, especially the impact on small, medium and micro enterprises. , Which will increase employment pressure and impact the investment willingness of real enterprises.

Therefore, the National Standing Committee pointed out that further strengthening of financial support to the real economy, especially small, medium and micro enterprises, will promote the steady and decline of comprehensive financing costs.

  When it comes to the method and timing of RRR cuts, Wen Bin believes that the possible method for RRR cuts will be targeted RRR cuts. The timing of the RRR cut will still depend on changes in inflation levels. The end of the third quarter may be a better time window.

  Li Chao believes that in the near future, the central bank is more likely to reduce the bank's comprehensive funding cost through targeted RRR cuts in exchange for expiring MLFs (similar to April and October 2018), and then guide LPR and entity sector financing costs down to hedge The increase in bulk prices puts cost pressure on the mid- and downstream industries.

  Guotai Junan also believes that considering that the 400 billion MLF expires in July, the maturity volume is twice that of June, and the pressure on the maturity volume in the second half of the year is not small, and the possibility of RRR cuts does exist.

  Regarding the follow-up monetary policy, Guotai Junan pointed out that the release of the "reduction rate" signal means the start of a new round of monetary easing cycle. As for the rhythm of marginal easing, or the means of easing are not the most important for the current market, it is important. The point is that this process from 0 to 1 is established, giving monetary easing room for continuous imagination.

  “Considering that the market’s overall expectation of funding in the second half of the year is neutral and tight, there will be a reverse correction after the National Standing Committee sets the tone. There is a high probability that funding will remain relatively loose for a long time in the future, driving interest rates to fall further. Step." Guotai Junan pointed out.

  The Paper, News Reporter Chen Yueshi