The market has recently heated up discussions on RRR cuts, with particular attention to whether there will be another RRR cut in the near future. However, this expectation has been significantly weakened with the release of the data that the PPI rose by 10.7% year-on-year in September.
Zhou Maohua, a macro researcher at the Financial Markets Department of Everbright Bank, said that the current monetary policy is to maintain reasonable and sufficient liquidity. The key prerequisite for lowering the RRR is whether the liquidity is reasonable and sufficient. In the first nine months of this year, the average value of DR007 (repo rate of deposit financial institutions in the inter-bank market) was 2.18%, which is very close to the central bank’s open market operation of the 7-day reverse repo rate of 2.2%. On October 18, DR007 was 2.16%. At the same time, the mid-market interest rate, represented by the yield to maturity of the 1-year commercial bank (AAA) interbank certificate of deposit, is significantly lower than the MLF interest rate recently. All these show that liquidity is reasonably abundant. According to financial statistics, at the end of September, M2 increased by 8.3% year-on-year, and the two-year average growth rate reached 10%. Social finance increased by 10% year-on-year, which basically matched the domestic nominal GDP growth rate.
Zhang Xu, chief fixed income analyst at Everbright Securities, pointed out that, in fact, RRR cuts, like reverse repurchase and MLF, are tools for the central bank to regulate the liquidity of the banking system. Its purpose is to guide market interest rates to fluctuate around policy interest rates, which is not fundamentally different. Zhang Xu pointed out that the original intention of the July RRR cut was to enhance financial institutions’ ability to allocate funds, increase support for small and micro enterprises, and reduce social comprehensive financing costs. Regarding the liquidity of the banking system, after the July RRR cut, DR007 has been operating at the 7-day reverse repurchase rate. Therefore, the July RRR cut is neutral and does not represent a change in the orientation of monetary policy. Routine operations after monetary policy returns to normal.
Zhang Xu said that after the RRR cut, there were too strong easing expectations in the market, and he believed that there would be further RRR cuts in the short term. The expectation of has not been fulfilled, and some investors believe that the monetary policy has entered a tightening cycle, which is irrational.
The central bank recently mentioned at a press conference that in recent years, the People’s Bank of Anticipation management stabilizes market expectations, effectively reducing the preventive liquidity requirements of financial institutions, and making the total amount of liquidity and excess reserve ratio required to maintain the smooth operation of money market interest rates continue to decline.
Previously, there was a market view that the current low over-reserve rate indicates a large gap in the domestic base money supply. Zhou Maohua pointed out that liquidity and capital interest rates are relatively stable when the over-reserve rate is low, which shows that the monetary policy transmission is smooth and the bank does not have much “surplus money”.”Sleep on the account of the central bank.
For the next stage, the central bank stated that the supply and demand of liquidity in the banking system will continue to maintain a basic balance in the fourth quarter, and there will be no major fluctuations. . Regarding the phased influencing factors such as government bond issuance and tax payment, as well as the maturity of medium-term lending facilities, the People’s Bank of China will comprehensively consider the liquidity situation and the needs of financial institutions, and flexibly use various monetary policies such as medium-term lending facilities and open market operations. Tools for timely and appropriate placement of liquidity with different maturities to smooth out short-term fluctuations, meet the reasonable funding needs of financial institutions, and maintain a reasonable and sufficient liquidity. At the same time, the implementation of structural monetary policy tools will also play a certain role in increasing the total amount of liquidity.
From the perspective of domestic fundamentals, regarding the slowdown in economic growth in the third quarter, Zhou Maohua said that this was mainly due to the epidemic, the flood season, and the repeated prices of some industrial raw materials. New highs, shortages of some key components, obstruction of global logistics, shortage of domestic electricity supply, and tightening of real estate financing environment. For these problems, the RRR cut is not completely symptomatic, and if excessive easing may lead to excessively rapid increase in macro leverage And potential financial risks such as the de-realization of potential funds. In the current complex environment, what is needed is multi-sectoral coordination, adopting targeted policies to ensure supply and stable prices, provide accurate relief for enterprises, and balance the stability of the economy, prevent risks and promote Reform.
From an international perspective, U.S. Treasury yields have risen since September, and the market’s expectations for the Fed to start reducing bond purchases before the end of the year are continuing to heat up. Compared with the sharp rebound in U.S. Treasury bond yields, China’s 10-year Treasury bond yields are around 2.95%, which is generally at a relatively low level.
Compared with the recent increase of about 40 BP, the rate of increase in China’s treasury bond yield is much smaller and still at a low level. This is a manifestation of the smooth operation of China’s financial market and a manifestation of China’s policy autonomy. Under the international background of the Fed’s policy adjustments, the Central Bank of China will still strive to maintain the smooth operation of financial markets including the treasury bond market.
In addition, cross-border capital flows are basically balanced, and the RMB exchange rate Two-way floating, maintaining basic stability at a reasonable equilibrium level. At the end of September, the central parity of the RMB against the US dollar was 6.49 yuan, an appreciation of 0.6% from the end of 2020. The CFETS RMB exchange rate index appreciated by 5% from the end of 2020. The financial market is operating smoothly and is affected by overseas The impact of policy changes and market volatility is limited.
Zhou Maohua said that from the perspective of internal and external economic policy environments, the normalization of the Fed’sThe impact is small. First, the fundamentals of China are stable, the situation of domestic epidemic prevention and control is improving, the economy is operating within a reasonable range, and the economic structure is continuously optimized. Second, China’s policy is within a normal range, and the US’s current round of policy normalization is slow, which means that China and the US will maintain a wide spread for a long time. Third, China has steadily promoted the high-level opening up of the financial industry. The internationalization of the renminbi is gradually accelerating, and the attractiveness of renminbi assets will continue to increase.
(Originally titled “View | Expectation of RRR cut will not change the pattern of reasonable abundance of liquidity in the fourth quarter”)