In order to support the development of the real economy and reduce the actual cost of social financing, the central bank decided to comprehensively reduce the deposit reserve ratio of financial institutions by 0.5 percentage points from the 16th. This is the second time that the central bank has announced a comprehensive RRR reduction since January this year.
'comprehensive RRR reduction + directional RRR reduction' launched with two arrows
The RRR reduction came two days after the national standing committee meeting proposed to 'timely use policy tools such as universal RRR reduction and targeted RRR reduction'. On September 6, the central bank announced that it would comprehensively reduce the deposit reserve ratio of financial institutions by 0.5 percentage points on September 16, 2019 (excluding financial companies, financial leasing companies and auto finance companies). In addition, the deposit reserve ratio of urban commercial banks operating only in provincial administrative regions will be reduced by 1 percentage point, which will be implemented twice on October 15 and November 15, with a reduction of 0.5 percentage point each time.
The relevant person in charge of the central bank said that the RRR reduction released about 900 billion yuan of long-term funds, including about 800 billion yuan of comprehensive RRR reduction and about 100 billion yuan of targeted RRR reduction. The official also said that the RRR reduction can effectively increase the sources of funds for financial institutions to support the real economy and reduce the cost of bank funds by about 15 billion yuan per year.
This is the third RRR reduction by the central bank in 2019 and the second comprehensive RRR reduction. In January this year, the central bank announced an overall reduction of reserve requirement by 1 percentage point; In May, the central bank decided to implement a lower preferential deposit reserve ratio for small and medium-sized banks focusing on local areas and serving counties.
Lu political commissar, chief economist of Industrial Bank, analyzed that the RRR reduction was more than expected in three points: first, it was not mentioned that the MLF expiring after the RRR reduction will not be renewed, which means that the MLF expiring in September may still be reduced and renewed; Second, both comprehensive and targeted RRR reductions were announced at the same time, and the amount of funds released reached 900 billion; Third, although the time point of the RRR reduction coincides with the tax period in September, September is not the big month of tax payment. The impact of tax payment on liquidity is temporary, and the RRR reduction releases long-term funds.
Fu Lichun, research director of Northeast Securities, told Zhongxin Jingwei client that reducing the deposit reserve ratio and the market-oriented reform of interest rate LPR have become the main tools for the central bank to regulate. RRR reduction may gradually become a major monetary policy hedging tool. In order to cope with the complex international environment and potential economic risks, there is still room for RRR reduction in the future.
CITIC Securities Research Report believes that the targeted RRR reduction and the selection of urban commercial banks in the province is not only aimed at solving the problem of liquidity stratification, but also conducive to the accurate delivery of liquidity. In addition, the RRR reduction of urban commercial banks in the province is also a positive guide for regional banks to focus on the local area. It is expected that banks in Zhengzhou, Qingdao, Xi'an and Suzhou are expected to enjoy the targeted policy.
How to affect the stock market, property market and bond market
In terms of the stock market, the China Singapore Jingwei client found that five RRR reductions have been implemented since 2018. On the day when the first four RRR reductions officially took effect, the A-share Shanghai Composite Index and Shenzhen Component Index closed in green. The first round of standard reduction in 2019 was completed in two times. On the effective date, both the Shanghai Composite Index and the Shenzhen Component Index closed in red.
Wanhe Securities believes that at present, the market still has certain expectations for the subsequent MLF interest rate adjustment, superimposed with multiple favorable factors such as favorable policies and liquidity environment, and the improvement of risk appetite in the A-share market is expected to continue. Ren Zeping, chief economist of Evergrande group, also believes that the RRR reduction will be good for the stock market. In terms of total amount, the reduction of reserve requirement will release liquidity, the interest rate will decline, and the inflow of funds into real estate will be strictly controlled, which will help the stock market rise.
In terms of the property market, Yan Yuejin, research director of the think tank center of E-House Research Institute, analyzed that the RRR reduction was in line with expectations and also released positive signals for the real estate industry.
He said that in the second half of this year, the judgment on the real estate market was generally pessimistic, including the LPR policy. In fact, the final conclusion would be that the mortgage interest rate would only rise and not decrease. However, this RRR reduction shows that stabilizing the economy is more important than deleveraging in the past, and the real estate industry itself will continue to play a role in stabilizing the economy.
Yan Yuejin also said that after the RRR reduction, there is greater support for the liquidity of banks, and it is also conducive to the easing of subsequent bank loan policies. Since the new LPR loan pricing mechanism will be implemented in October, the base points of some cities may be increased, but relatively speaking, banks are more willing to actively lend, which is also good for loans in the property market.
Zhang Dawei, chief market analyst of Zhongyuan Real estate, analyzed that historically, as long as the RRR is reduced, it must be good for real estate and can alleviate the pressure on capital. However, in the current situation of tightening policies for the property market, the benefits are limited.
"The RRR reduction will certainly alleviate the financial pressure of real estate enterprises. For home buyers, real estate loans are still high-quality credit business for most banks. The purpose of the RRR reduction is certainly not to breathe for the property market, but it is inevitable that the property market will benefit and the market is expected to be stable. " Zhang Dawei said.
For the bond market, Jiang Chao, chief Macro Analyst of Haitong Securities, believes that subject to the stability of short-term interest rates, it is difficult to break through the resistance level of 3% for the interest rate of 10-year Treasury bonds in recent one month. The RRR reduction is conducive to driving the short-term interest rate downward, thus opening the downward space of long-term interest rate.
Soochow Securities said that on the whole, the central bank's RRR reduction is consistent with the tone of the national standing committee, and the monetary policy will remain loose in the later stage. At the same time, it can be seen that the monetary policy is still not flooded, and its focus is still on reducing costs and adjusting structure. Therefore, we are still optimistic about the bond market in the fourth quarter.
What else is there after the RRR reduction?
Since 2018, the phenomenon of "double track interest rate" is still obvious, and the interest rates in the money market and bond market have decreased significantly, but the weighted average interest rate of RMB general loans of financial institutions has only decreased slightly, which is still far from the goal of "significantly reducing" the level of real interest rate.
In the time when the RRR reduction has come and it is unknown whether to 'cut interest rates' through MLF in September, the market expects to judge the next direction of monetary policy through each open market operation of the central bank. China finance futures believes that after the RRR reduction, the Central Bank of China still has a high probability of following the Federal Reserve to cut interest rates slightly in September. In September, the Federal Reserve cut interest rates by 25 basis points with a high probability and 50 basis points with a low probability. The Central Bank of China is expected to lower the MLF interest rate by less than 10 basis points, driving the LPR interest rate down.
China finance futures said that the necessity of the central bank's interest rate reduction lies in the great downward pressure on the real economy. Only by reducing the reserve requirement can not effectively stimulate bank lending and real credit expansion. Therefore, it is necessary to work together through the combination of reserve requirement reduction and interest rate reduction to improve the policy effect. Moreover, this may be the beginning of the easing cycle.
Ming Ming, deputy director of CITIC Securities Research Institute, said that the combination of comprehensive RRR reduction and targeted RRR reduction announced by the central bank on September 6 exceeded expectations, but the market reaction was flat after the central bank did not renew MLF on September 9. Compared with the interest rate trend after the previous RRR reduction since 2018, the market response after the more than expected RRR reduction policy is flat, mainly due to the concern about the follow-up policy. On the one hand, does the probability of interest rate reduction decrease after the comprehensive RRR reduction? On the other hand, if MLF does not continue after RRR reduction, the actual easing effect of RRR reduction may be limited.
According to clear analysis, the reason why MLF will not continue in the short term is to avoid short-term liquidity overlap. However, since July, the liquidity gap has reappeared, and medium and long-term liquidity supply is still needed. It is worth mentioning that MLF also shoulders the function of interest rate pricing. If the standard reduction 'crowding out' MLF operation, it will be difficult to promote the marketization of interest rate. At the same time, it is still difficult for the central bank to promote bank table expansion due to the passive table contraction caused by the RRR reduction. To drive bank table expansion, it also needs the cooperation of other regulatory policies and industrial policies.
Wen bin, chief researcher of China Minsheng Bank, told Zhongxin Jingwei client that there is still room and necessity for interest rate reduction on the basis of RRR reduction. Financial institutions should be guided to effectively reduce the financing cost of the real economy through the new LPR mechanism. He predicted that on September 20, the one-year quoted interest rate of LPR may fall by 5 basis points to 4.2%.
(original title: who will benefit from the second comprehensive RRR reduction this year? What else will happen after the RRR reduction?)