Heavy! The central bank just ＂cut interest rates＂ by 5 basis points! How much impact does the exclusion of mortgage have on the property market and stock market？ Will there be a RRR cut in the future？
~ ~ ~ There are benefits at the end of the article ~ ~ ~
After 19 months of "staying put", the one-year LPR quotation was lowered for the first time in the year!
On December 20th, the central bank authorized the National Interbank Funding Center to announce that,The latest loan market quotation rate (LPR) is: 1-year LPR is 3.8%, which is 5 BP lower than that of the previous period, and the LPR over 5 years is 4.65%, which is consistent with the previous period..
It is worth noting that the LPR quotation is composed of the medium-term loan facility (MLF) interest rate and the bank’s plus point. This month, the LPR quotation has been lowered under the condition that the MLF operating interest rate remains unchanged.
In this regard, Wang Qing, chief macro analyst of Oriental Jincheng, said that the tender interest rate of MLF remained unchanged in December, but the central bank implemented a comprehensive RRR cut that month, and the cumulative effect of the RRR cut in July on reducing bank costs and other factors triggered the downward adjustment of the one-year LPR quotation.
Wang Qing said,The 5-year LPR quotation remains unchanged, mainly because the current tone of real estate regulation and control of "staying in the house and not speculating" has not changed.The regulatory authorities are working to promote measures including the recovery of the financing environment of housing enterprises and the acceleration of the issuance of residential mortgages. If the real estate market continues to be under pressure in the future, it is not excluded that the 5-year LPR quotation and the 1-year LPR quotation will be lowered at the same time in the subsequent LPR quotation reduction process.
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The 1-year LPR is lowered by 5 BP to 3.80%.
Wind data shows that since the LPR reform in August 2019, the 1-year LPR has been lowered by more than 50 BP for 6 times, and the LPR over 5 years has been lowered by 20 BP for 3 times.
National business daily reporter noted that,This is the first downward adjustment of LPR after a lapse of 19 months.. At present, 1-year varieties are reported to be 3.80%, down 5 basis points from last time; Varieties over 5 years old reported 4.65%, which was the same as last time.
Since September 2019, the 1-year LPR quotation and the 1-year MLF bidding interest rate have always been adjusted synchronously. It is worth noting that this month, when the operating interest rate of MLF remained unchanged, the LPR quotation ushered in a downward adjustment.
In this regard, Dong Ximiao, chief researcher of Zhaolian Finance, said that LPR declined asymmetrically this month. First, two comprehensive RRR cuts this year provided banks with long-term low-cost funds; Second, since last year, the supervision of deposit interest rate and the adjustment of deposit interest rate pricing mechanism have pushed down the cost of bank liabilities; Third, the one-year LPR declined, mainly to push down the short-term and medium-term loan interest rates and reduce the financing cost of the real economy.
Wang Qing believes that the central bank’s comprehensive RRR cut of 0.5 percentage point on December 15th can reduce the capital cost for banks by about 15 billion per year, while the comprehensive RRR cut in July has already reduced the capital cost for banks by about 13 billion per year. Under the cumulative effect, two comprehensive RRR cuts have obvious effects on reducing the cost of banks, which has become a direct reason for triggering the downward adjustment of the one-year LPR quotation this month.
"Another important reason is that the way to determine the self-regulatory upper limit of deposit interest rate was adjusted in early June, that is, the previous’ benchmark interest rate × multiple’ was changed to’ benchmark interest rate+basis point’. During this period, the cost of bank deposits declined as a whole, which also provided the impetus for banks to lower the loan market interest rate quotation (LPR quotation)." Wang Qing said.
Wang Qing said that the downward adjustment of the one-year LPR quotation will not only directly push down the financing cost of the real economy, but also reflect that under the triple pressure of shrinking demand, supply shock and weakening expectations, monetary policy is stepping up counter-cyclical regulation in time, which has an important signal function to stabilize market expectations, ease the downward pressure on the property market and promote the restorative growth of consumption and investment.
The 5-year LPR quotation remains unchanged.
The tone derived from "housing and not speculating" has not changed.
Although the one-year LPR ushered in a downward adjustment, the LPR of more than five years as a reference for mortgage interest rates remained at 4.65%, which was consistent with the previous period.
Wang Qing believes that,This is mainly due to the fact that the current tone of real estate regulation and control of "staying and not speculating" has not changed, and the regulatory authorities are starting to promote measures including the recovery of the financing environment of housing enterprises and the acceleration of residential mortgage issuance.. If the real estate market continues to be under pressure in the future, it is not excluded that the 5-year LPR quotation and the 1-year LPR quotation will be lowered at the same time in the subsequent LPR quotation reduction process.
Zhou Maohua, a macro researcher in the financial market department of China Everbright Bank, told the national business daily that the benchmark interest rate of LPR quotation was lowered moderately, mainly to guide banks and financial institutions to moderately reduce the comprehensive financing cost of the real economy, rationally benefit the real economy and stimulate the vitality of micro-subjects. The financial data in November reflected that the overall credit demand of enterprises was weak.
Zhou Maohua said that the five-year LPR benchmark quotation rate remained unchanged, slightly exceeding expectations.Mainly release the domestic real estate policy, and do not use real estate as a short-term stimulus tool..
"The tone of the domestic property market regulation is consistent and continuous, that is, let the property market return to its real property, avoid speculation and irrational’ prosperity’ to overdraw the long-term development potential of the regional economy, but also avoid short-term economic and financial stability caused by short-term over-cooling of the property market. By improving the basic system, strengthening supervision, preventing potential risks and promoting the high-quality development of housing enterprises. " Zhou Maohua said.
Dong Ximiao said that the LPR will remain unchanged for more than five years, mainly because it will not send a loose signal to the real estate market. This also shows once again that the stable orientation of monetary policy has not changed, and the next step will be to make monetary policy more flexible and moderate through fine-tuning and pre-adjustment.
What is the impact on the stock market and bond market?
According to 21st century business herald, the downward adjustment of the one-year LPR quotation is expected to end the marginal upward trend of corporate loan interest rate in the third quarter. The third quarter monetary policy implementation report showed that the weighted average interest rate of loans in September was 5.00%, up 0.07 percentage points from June. Among them, the weighted average interest rate of corporate loans was 4.59%, up 0.01 percentage point from June.
"After the one-year LPR is lowered, the interest rate on corporate loans will be appropriately lowered, which is in line with the reform direction of reducing corporate financing costs. However, the mortgage interest rate is different from the interest rate of public loans, and the mortgage interest rate should be subject to the overall situation of national real estate regulation. " A person from the assets and liabilities department of a joint-stock bank said, "The one-year LPR declines, while the five-year LPR does not move, which meets the needs of real estate regulation and policy restructuring."
For the bond market, Ming Ming, deputy director of CITIC Securities Research Institute, believes that the MLF interest rate will remain unchanged and the LPR reduction will be bad for the bond market. First, the downward adjustment of LPR will weaken the necessity of MLF interest rate cut in the short term, and the necessity of subsequent monetary easing will be reduced. Second, the downward adjustment of LPR quotation indicates that the policy still focuses on wide credit and supporting the real economy.
"The downgrade of LPR will promote the process of wide credit rather than wide currency. Considering the expectation of a better bank credit environment in 2022, LPR will downgrade or expand the credit scale to support the real economy, so the impact of wide credit will be bad for the bond market." Clearly said.
The latest research report of Guojin Securities pointed out that the one-year LPR was slightly lowered and the five-year LPR remained unchanged, which was basically in line with market expectations.Under the contraction of economic demand, reducing the cost of entity financing and stimulating it are the vitality and demand of market players and an important way for financial "steady growth".Recently, the central bank has also stressed on many occasions that it is necessary to promote the steady decline of comprehensive financing costs of enterprises, and the two consecutive RRR cuts have also accumulated some momentum for cost reduction.
Zhao Wei, chief economist of Guojin Securities, said that the downward adjustment of LPR is just the beginning, and the continuous reduction of entity financing costs can better stimulate the vitality of entities.For stocks, reducing the entity cost is helpful to reduce the financing cost of listed companies and improve the fundamental demand, which is conducive to fundamental-driven pricing.. From now until 2022, the monetary liquidity environment will be similar to that in 2015-2016, and the situation of "asset shortage" will continue, with a solid foundation for debt cows and a deepening stock market structure.
Everbright Securities Research Report suggested that the interest rate cuts of MLF and DR007 are beneficial to the bond market.However, LPR’s interest rate cut is not good for interest rate bonds..
First of all, LPR is the benchmark interest rate in the loan market, not the policy interest rate of the central bank, so the interest rate cut by LPR is quite different from that by MLF. MLF interest rate is not only the interest rate of the central bank’s operating tools, but also the operational goal of monetary policy. Once the MLF cuts interest rates, it means that the monetary policy orientation has changed. At this time, it is no problem to do more bonds. LPR is the arithmetic average of the loan interest rate quoted by the quotation bank for the best quality customers, which reflects the supply and demand situation of the loan market, and reflects the result of monetary policy regulation in the past, not the future policy orientation.
In addition, LPR interest rate cuts weaken the necessity of MLF interest rate cuts.LPR’s interest rate cut will help stabilize the macro-economy, which also restricts the downward trend of the yield.From the price point of view, LPR has a directional and guiding role, and the reduction of this interest rate can guide the real interest rate of loans to go down.In terms of quantity, LPR’s interest rate cut will help to ease the interest rate constraints faced by banks in the process of issuing loans and solve the so-called "insufficient demand for effective loans".The above-mentioned role in volume and price is beneficial to "stable credit" and "stable economy", but it also restricts the downward trend of yield.
At the same time, LPR is not the capital cost of bond investors, so the interest rate reduction by LPR is quite different from that by DR007.The exchange rate effect from loan interest rate to bond interest rate is easily submerged. Some investors believe that the decline of loan interest rate will drive the interest rate of the whole financing market down, thus benefiting the bond market. In fact, bond investors and loan issuers are two different groups, with different profit-making methods and investment constraints, so the two markets have always been divided. In view of this,The decline of loan interest rate is difficult to be fully transmitted to the bond market through the price comparison effect in a short period of time, and its influence is easily overwhelmed by the natural fluctuation of the market..
Analyst: It is expected that the RRR cut will continue in the first half of next year.
According to Guotai Junan Research Report, the reduction of LPR quotation interest rate is not only an "ex post facto confirmation" of the RRR cut, but also a "further response" to the policy. In September 2019 and January 2020, the statutory reserve ratio was reduced by 0.5% each, which led to a decrease of 0.02~0.03 percentage points in the arithmetic average of commercial banks’ quotations and rounded to the nearest 0.05%. Therefore, two downgrades correspond to one step (5bp) adjustment of one-year LPR.
Referring to this case, in this round of easing cycle, targeted cuts to required reserve ratios was 0.5% in July and December respectively, and the net investment (after considering the expiration of the MLF in that month) was 600 billion and 750 billion. It also reached the order of magnitude to promote the adjustment of one-year LPR by one step.
From the perspective of policy adjustment, the start of this round of easing cycle is the result of forward-looking cross-cycle adjustment of policies. First, the Politburo meeting repeatedly stressed the need to "promote the comprehensive financing cost of small and micro enterprises to decrease steadily" and "promote the further reduction of the actual loan interest rate". In addition, the Central Economic Work Conference held earlier than before in December described the triple pressures faced by the economy with "demand contraction, supply shock and expected weakening" and conveyed a strong signal of seeking "stability". The reduction of LPR quotation interest rate is a response to the policy to adjust the economy.
Although the mainstream view is that the reduction of LPR quotation rate actually inhibits MLF’s interest rate cut. Because from the perspective of pricing mechanism, there are two alternative paths to push down the quoted interest rate of LPR, namely, compressing the number of points or lowering the benchmark interest rate, which do not need to be parallel.
But we have some different views. From the bank’s point of view, most loans will be re-priced in January of the following year, and the re-pricing is based on the LPR in December of the previous year. Therefore, the downgrade of LPR in December has a great impact on banks, and the willingness of banks to downgrade may not be high. The reduction of the LPR quotation interest rate is that banks give profits to the real economy on their own initiative, and in turn, the central bank will give appropriate "encouragement" and make some "profits". Then, next,As long as the pattern of weak economic fundamentals is not reversed in the short term, the market’s expectation of the next interest rate cut will still ferment..
Looking to the future, Oriental JinchengChief macro analystWang Qing said that, based on the expectation that the steady growth policy will be moderately advanced in 2022, it is expected that the interest rate reduction will continue in the first half of next year, and the possibility of slightly lowering the MLF interest rate will not be ruled out. In this way,In the first half of 2022, there is still room for a slight downward adjustment in LPR quotation..
Edit |Dubo, Duan Lian
Proofread |Sun Zhicheng
National business daily is integrated from every Jingwang (Reporter: Xiao Shiqing), 21st century business herald, Guojin Securities Research Report, Everbright Securities Research Report, Guotai Junan Research Report, and public information.
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