Author of this article: Zhang Yu, assistant director and chief macro analyst of Huachuang Securities Research Institute, source: Yiyu, excerpted from: "[Huachuang Macro·Zhang Yu Team] "Two-way" between DR007 and policy interest rate - Comment on the reduction of LPR interest rate in August 2022"
Central Bank lowered the one-year loan market quotation rate (LPR) by 5bp to 3.65%, and the five-year loan market quotation rate (LPR) by 15bp to 4.3%.
Understanding of LPR downward
Why does asymmetric downward ? combined with current financial data, we found that in fact, various types of short-term loans performed better, while the decline was more obvious. medium- and long-term loans , especially residents' personal housing loans. Therefore, compared with the one-year LPR that benchmarks short-term loans, it is more urgent to lower the five-year LPR.
What is the level worth observing for this round of downgrade? What is worth observing is the 1-year LPR reduction. Combined with the column 3 of the Central Bank’s monetary policy report for the first quarter of 2022, "Establishing a Market-oriented Adjustment Mechanism for Deposit Interest Rate", the current self-discipline mechanism member banks will refer to "the bond market interest rates represented by the 10-year treasury bond yield and the loan market interest rates represented by the 1-year LPR to reasonably adjust the deposit interest rate level." Considering that both the current ten-year treasury bonds and the one-year LPR interest rates have been lowered, we suggest that deposit interest rates may fall by 5bp in the future.
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Is there any need to further cut interest rates in the future?
We believe that there is a possibility of further interest rate cuts in the future. The specific reasons for From the perspectives of real estate, industrial enterprises, residents' consumption, and government finance:
(I) Real estate level: When buying a house, it is not as good as buying a financial management
From the perspective of the additional rate of return for residents to buy a house, residents' willingness to buy a house is actually the lowest value since 2016. After the 5-year LPR was reduced by 15bp, the minimum interest rate for first-home mortgages could theoretically reach 4.1%, while the price index of newly built commercial housing in 70 large and medium-sized cities across the country was -1.7% year-on-year in that month. The 6-month financial management yield in the entire market is between 2.0% and 2.8%. combined with our previous report " When buying a house, you can't buy financial management. Is 15bpLPR enough? 》, insisting on housing for living, not for speculation (assuming that the housing prices in first- and second-tier cities do not exceed 5% year-on-year ), LPR may still need to drop by at least 100bp or above in the next five years.
From the perspective of the government, the government also has demands of downward mortgage interest rates. Looking back at history, whenever land transfer income is negative year-on-year, mortgage interest rates are likely to show a significant downward trend.
(II) Industrial enterprise level: Prices fall, volumes are difficult to increase
Looking back at historically, when industrial enterprises' profits are negative year-on-year, the probability of the central bank's interest rate cut may significantly increase .
First of all, from the perspective of price, PPI may show a significant downward trend year-on-year in the future. Under the influence of the high cardinality of , PPI may gradually decline and stabilize at a low level in the next period of time. We expect the year-on-year average of PPI in the fourth quarter to be about 0.7%, 1% in the first quarter of next year and -0.6% in the second quarter. July PPI was 4.2% year-on-year.
Secondly, from the perspective of industrial growth, combined with "Economic difference, currency wide, stocks and bonds tend to be "long-term" - July Economic Data Comment", the current industrial growth may be directly related to real estate. Considering that short-term commercial housing sales are difficult to improve, it may be difficult to improve marginally year-on-year in the future.
PPI falls, and industrial growth is difficult to significantly improve, if the year-on-year growth rate of industrial enterprises in the third and fourth quarters is again negative, policy interest rates may still be necessary to lower.
(III) Residents' consumption level: The epidemic has been repeated, savings prevention
For residents' consumption, the current willingness of residents seems to have a significant increase. According to the central bank's questionnaire survey on urban depositors, the average proportion of residents who tend to save more during the ten-year period from 2010 to 2019 was about 44%, with the highest being 47.6% in June 2014 and the lowest being 37.6% in December 2010, with relatively small overall fluctuations. Since the epidemic, the highest ratio in 2020 was 53% in March 2020, the highest ratio in 2021 was 51.8% in December, and by June 2022, this value reached 58.3%, up 10.7% from the pre-epidemic highest point and 6.4% from the highest point in 2021.
Apart from the rising willingness to save, the second biggest problem facing residents at present is the restrictions on residents' consumption scenarios due to the epidemic. Since 2020, the year-on-year retail sales outside the automobile industry has shown a significant reverse relationship with the number of new patients in the new crown epidemic.
(IV) Fiscal level: The probability of further fiscal policy is not high.
For fiscal policy, the probability of further fiscal policy is not high. First of all, under the policy requirements, the 2 trillion special bonds issued in May to June will be basically used before the end of August; secondly, according to Wang Daoshu, deputy director of the State Administration of Taxation, as of July 25, the new tax reduction and fee reduction and tax refund and tax relief have exceeded 3 trillion yuan this year. It is expected that there will be no large-scale new tax refunds, tax and fee reduction policies in the second half of the year. Third, as of the end of July, the central bank has paid 1 trillion yuan in profits. Considering the annual target amount of 1.1 trillion yuan, it is expected that only 100 billion yuan of profits will be paid in the future.
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Future Monetary Policy Outlook
Combined with our previous report "If MLF does not decrease, does LPR still have room to decrease? According to the calculations of 2022.06.18, it is already slightly difficult to support the decline in loan interest rates through unilateral concessions in banks. This time, the central bank has pushed the downward trend of LPR through interest rate cuts. From this observation, if you want to further promote the decline of mortgage interest rates or physical loan interest rates in the future, the implementation of the central bank's total monetary policy is still needed.
Secondly, overseas interest rate hike cycle + CPI Under the background of breaking the three pressures, the central bank's interest rate cut operations may indicate that the policy has made a choice - both inside and outside, pay more attention to "internal"; between demand and inflation, pay more attention to demand. combined with our previous report "When buying a house cannot buy financial management, is 15bpLPR enough? According to the calculations of 2022.05.20, the total policies such as interest rate cuts and reserve requirement ratio cuts are actually worthy of higher expectations.
Third, the current phenomenon of funds moving from real to virtual is more obvious, which may stimulate the central bank's regulatory behavior. combined with our previous report "It's not a problem of tightness, it's a problem of return - Comments on the Monetary Policy Implementation Report for the Second Quarter of 2022", we suggest that as fiscal efforts gradually reach their peak, DR007 may be close to the reverse repurchase 7-day interest rate, and DR007 and the policy interest rate may achieve two-way rushing.
This article comes from the financial world
