laitimes

Heavy signal! These 5 words, back

author:UBM Finance

Original by Liu Xiaobo

The most noteworthy financial news today is the latest statement on monetary policy by Central Bank Governor Yi Gang during his investigation in Shanghai.

According to a press release on the central bank's website, his exact words were:

In the next step, in accordance with the decisions and arrangements of the Party Central Committee and the State Council, the People's Bank of China will continue to implement a prudent monetary policy with precision and force, strengthen counter-cyclical adjustment, fully support the real economy, promote full employment, and maintain currency stability and financial stability. Comprehensively use a variety of monetary policy tools to maintain reasonable and sufficient liquidity, maintain a moderate and stable pace of monetary credit, promote the steady reduction of comprehensive financing costs of the real economy, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.

Heavy signal! These 5 words, back

It is worth paying close attention to the fact that when he mentioned the relationship between monetary policy and economic cycles, he used "strengthening counter-cyclical adjustment" instead of "doing a good job in cross-cyclical adjustment".

"Countercyclical adjustment", these 5 words are back!

When describing monetary policy, central banks often switch between "strengthening counter-cyclical adjustment" and "doing a good job of cross-cyclical adjustment".

When emphasizing "strengthening counter-cyclical adjustment", it means that in the face of downward pressure on the economy, overall measures such as lowering the reserve requirement, cutting interest rates, and increasing the money supply may be adopted, and it tends to "increase the intensity of regulation and control".

When emphasizing "doing a good job in cross-cycle adjustment", it often means entering a period of policy observation, focusing on structural policies and targeted policies.

The central bank's monetary policy committee meets quarterly and issues a circular to convey the latest signals on monetary policy.

In the press release for the fourth quarter of last year, it was said like this:

It is necessary to adhere to the principle of steadiness and progress, strengthen cross-cyclical and counter-cyclical adjustment, and increase the implementation of prudent monetary policy; Give full play to the dual functions of the aggregate and structure of monetary policy tools.

Heavy signal! These 5 words, back

As a result, there was a RRR cut in the first quarter of this year, and the year-on-year growth rate of broad money M2 also increased significantly.

In the first quarter of this year, the expression becomes:

It is necessary to implement prudent monetary policy accurately and effectively, and do a good job in cross-cycle adjustment; Better play the dual functions of the aggregate and structure of monetary policy tools.

Obviously, "strengthening counter-cyclical adjustment" has been deleted, and only "doing a good job in cross-cyclical adjustment" has been retained, and the expression "increasing the intensity of macro-policy regulation and control" has also been deleted.

After reading the press release of the first quarter meeting of the Monetary Policy Committee, I wrote an analysis on April 14 that macro policy has entered a period of observation, and my statement at that time was:

Judging from the draft of the first quarter meeting of the Monetary Policy Committee of the People's Bank of China, monetary policy has undergone subtle changes, and in the future, more emphasis will be placed on precision, and more structural and directional tools will be used; When policies are introduced, the use of counter-cyclical tools will be reduced, and more consideration will be given to cross-cyclical to avoid large inflation in the future.

The reason for this change may be related to the gradual improvement of data in the first quarter, especially in March. In this case, monetary policy has the meaning of entering a wait-and-see period. But this does not mean tightening, because the circular does not use the words "manage the main floodgate" and "keep the macro leverage ratio basically stable". The emergence of these words implies a shift in monetary policy. Therefore, the overall monetary policy is still loose, but it may not hit the throttle for the time being.

Later, sure enough, there was no RRR cut or interest rate cut, and the year-on-year growth rate of broad money M2 fell for two consecutive months (figure below). Even if the economic data cooled significantly in April, there was no "macro policy boom" phenomenon.

Heavy signal! These 5 words, back

So why did central banks switch monetary policy from "cross-cyclical" to "counter-cyclical" again?

It is related to the cooling of the economy in April and May, in fact, I have predicted many times before: macro policies are likely to hit the gas pedal again in June.

Although the economic growth data for the second quarter will not be bad overall (last year's base was low), the third quarter will obviously face greater pressure.

The latest CPI released by the Bureau of Statistics today also continued to remain low, with an increase of only 0.2%.

Heavy signal! These 5 words, back

PPI also fell back to "-4.6%" and is likely to continue to weigh on CPI:

Heavy signal! These 5 words, back

This will further exacerbate the "deflationary expectations" of the private sector, making people unwilling to consume and invest.

In this regard, Yi Gang also explained in Shanghai today, he said: CPI is expected to gradually recover in the second half of the year, and by December CPI will be more than 1% year-on-year.

How will central banks "strengthen countercyclical adjustments" in the future? I think the key is to continue to promote the rebound of the stock of social financing.

Heavy signal! These 5 words, back

The chart above shows the recent year-on-year growth rate of social financing stock, which has been struggling at a low level, which is in stark contrast to the year-on-year growth rate of M2 (mainly the reduction of off-balance sheet financing).

Social finance can be understood as "wide-caliber money printing speed", which has been relatively low and is an important reason why the economy has not yet recovered.

Policies that can be adopted include: continue to cut the RRR and interest rates, and increase support for the real estate industry.

Since the RRR has already been cut once in the first quarter, a rate cut in the near future is more likely. If the rate is cut in June, there will be a change in the MLF rate on June 15, sending a policy signal for a rate cut, and then lowering the LPR on June 20.

At present, there is still room for interest rate cuts in LPR (Loan Market Quotation Rate), and it is estimated that there may be asymmetric rate cuts, 1-year rate cuts of 5 to 10 basis points, and 5-year rate cuts of 10 to 15 basis points.

If the lending rate is not lowered in June, the chances of a rate cut in July are very high. There will be another RRR cut before the end of the year.

In addition, for housing enterprise financing and personal housing loans, we can continue to tap the potential of policies. For example, the down payment ratio of the second house in a big city is too high, and it can be appropriately reduced. In the future, the down payment ratio of non-restricted areas and first-time home purchases can be considered to fall below 20%.

In the United States, the weighted average down payment for first-home buyers in 2021 was 6%; Hong Kong, China, has long been reduced to 10%, and it is expected to be reduced to 5% in the near future.

Under the background of the current credit investigation means, big data, face recognition, and golden tax projects, the decline in the down payment ratio of house purchase is increasing, and the risk is controllable. Of course, having the down payment below 20% is unlikely to materialize this year. It would be nice to be able to reduce the down payment ratio of second homes in big cities.

Recently, large state-owned banks have generally lowered deposit rates, and joint-stock banks are likely to follow suit next week. The reduction in deposit rates has made room for loan rate cuts.

Yi Gang's latest speech also mentioned "promoting the steady reduction of comprehensive financing costs of the real economy".

However, under the current economic thinking, the counter-cyclical force will not be too great. Yi Gang's emphasis on "maintaining currency stability and financial stability" means this. Maintaining a prudent tone in monetary policy will not be easily changed.