Although the latest March LPR has not been lowered, the market expects that subsequent RRR cuts or interest rate cuts are still necessary to guide LPR downward.
The National Interbank Funding Center authorized by the People’s Bank of China announced that the loan market quoted interest rate (LPR) on March 21, 2022 is: 1-year LPR is 3.7%, The LPR over 5 years is 4.6%.
MLF (Medium-Term Lending Facility) interest rates remain unchanged and banks’ debt costs are seen as important factors restricting the decline in LPR this month. On March 15, the central bank kept the winning interest rate unchanged when it continued to do MLF, and the “interest rate cut” expectation was subsequently defeated.
The chief analyst of fixed income of CITIC Securities Research Department clearly believes that the spread between 1-year LPR and 1-year MLF after the RRR cut in December 2021 will be further compressed to historical levels The low value is 85bps, and the MLF operating rate remains unchanged, which is the basis for the LPR to remain unchanged, and the increase in the cost of bank liabilities since the beginning of the year has further restricted the compression of the LPR quotation. With the increase in the issuance of government bonds, the intensification of bank loans, and the widening of the funding gap at the end of the quarter, the bank’s over-reserve ratio remained low, the interest rate on interbank certificates of deposit rose rapidly, and the cost of bank liabilities increased. Although the central bank has stabilized the short-term funds by renewing the MLF in excess and increasing the scale of reverse repurchase, the widening gap in bank liabilities and the rising cost of liabilities still exist, hindering the decline of LPR.
Wen Bin, chief researcher of China Minsheng Bank, also pointed out that, from the perspective of the reasons, the MLF interest rate and the plus points constituted by LPR did not meet the conditions for decline. On March 15, the central bank operated 10 billion yuan of reverse repurchase in equal amount and continued to do 200 billion yuan of MLF in excess, and the winning rates were 2.1% and 2.85%, respectively, the same as before. The policy rate has not been lowered, indicating that the LPR quotation is likely to remain unchanged this month. In addition, since the beginning of the year, banks have continued to increase credit issuance to reduce the financing costs of the real economy. In the absence of RRR cuts and interest rate cuts this month, banks are constrained by capital costs, and the spread pressure drop has not reached the minimum 5BP step that will lead to a drop in LPR. long.
CITIC Construction Investment believes that last week, MLF continued to do not cut interest rates, reflecting that the central bank is basically satisfied with the effect of previous policies, and that before and after the first interest rate hike by the Federal Reserve, the equity and exchange rate Market fluctuations also require the central bank to combine “me-dominant” and moderate prudence in terms of policy orientation.
However, in the context of the State Council’s Financial Committee distributing reassurance to the market through special meetings, although both MLF and LPR remained unchanged in March, the market was not interested in the follow-upMonetary policy easing expectations are still strong.
On March 16th, the Financial Stability and Development Committee of the State Council held a special meeting to study the current economic situation and capital market issues. In the first quarter of the economy, monetary policy should take the initiative to respond, and new loans should maintain moderate growth.
Huatai Securities pointed out that if interest rate cuts are not used to transmit signals, other monetary policy channels may need to be significantly increased in stabilizing growth policies, especially base monetary expansion, otherwise credit will not be able to stabilize. The agency believes that if only one channel of interest rate cuts is to be seen, the LPR for 1-year and more than 5-year periods may need to be continuously lowered (cumulatively lowered by 20-30 and 10 basis points) in order to support the growth of money and credit and prevent the further increase of the residential mortgage burden. If interest rates are not cut, other channels may need to significantly increase the policy of stabilizing growth. At the monetary policy level, it is necessary to promote the expansion of the base money, otherwise it may be difficult to achieve the “maintain moderate growth of new loans” mentioned by the Financial Stability Commission.
Western Securities pointed out that “active response” means that there will be a targeted implementation of monetary policy in the near future, and “strong support for small, medium and micro enterprises” means that monetary policy tools will be implemented. The choice is to support small-scale re-lending and other structural monetary policy tools. This situation is similar to the operation of the central bank to increase the 300 billion small re-lending quota after the financial institution’s credit form analysis meeting was held in August last year.
The agency pointed out that under the circumstance that the impact of uncertain shocks such as the epidemic and the Russian-Ukrainian conflict has declined, easing monetary policy is more cost-effective. In addition, in the March FOMC, the Federal Reserve has significantly lowered the economic growth rate for the year, which means that the downward pressure on the US economy will also be highlighted in the second half of the year. At that time, the Fed’s monetary policy will also turn from tight to loose, making more room for the domestic loose monetary policy.
CITIC Securities believes that the RRR cut policy is worth looking forward to in order to further stimulate demand and reduce corporate financing costs after both MLF and LPR downgrade expectations in March failed. On the one hand, the bank’s excess reserve rate has dropped to about 1.2%, which limits the expansion of new loans; on the other hand, the NCD interest rate has recently risen to the level before the interest rate cut in January. guide. If the RRR cut is implemented, it will ease the downward pressure on excess reserves and control the cost of bank liabilities, reducing corporate financing costs from both the supply and demand sides. In addition, the total amount of financial data in February was weak and the structure was poor, especially the rapid decline in the PMI of small enterprises and the rebound in urban unemployment. Monetary easing operations are still needed to stabilize the main body and maintain employment. Superimposed on the spread of the epidemic in March, it is feasible to lower the reserve ratio. And the necessity further rises.