The central bank is sending a new signal: to promote the recovery of prices

The central bank sent a new signal.

Regarding the judgment of the current economic situation, the judgment of the trend of the US dollar interest rate hike, and the next domestic water release, the third quarter meeting of the Monetary Policy Committee of the People's Bank of China held on September 25 gave an explanation.

To sum up, there are 4 points worth paying attention to.

The domestic economic situation was judged to be "sustained recovery", but the challenge of "facing insufficient demand" was still emphasized.

Compared with the second quarter, this time the expression of the domestic economy is a little more optimistic. From "endogenous motivation is not strong" in the second quarter, it has changed to "enhanced momentum"; From "steady recovery of market demand and continuous increase in production and supply" in the second quarter to "continuous recovery".

This is obvious.

In August, in addition to real estate, various economic data generally showed signs of stabilization, and indicators such as industrial added value, social zero, profits of industrial enterprises on the scale, and PMI exceeded market expectations, indicating that economic momentum has been enhanced.

CPI rebounded, PPI decline narrowed, social financing improved, and profits of industrial enterprises became the biggest bright spot:

Profit growth turned sharply positive, ending a year-long decline of 17% year-on-year. Even if the base effect is removed and the average annual growth rate of the two years is removed, it has also turned from negative to positive.

Among them, the upstream (raw material industry) repair is the most obvious, the equipment manufacturing industry is second, and the downstream consumer goods are not obvious. The reason is that the upstream killing was too fierce in the previous two years, and now it belongs to the over-fall repair.

Looking further back, it will have to wait until the downstream picks up significantly before pulling the second round of recovery upstream.

In short, these are the logic of the central bank's judgment that the current economy is continuing to recover.

The "countercyclical adjustment" is proposed again, and there is a new term called "continuous force", both of which indicate that monetary policy will continue to be accommodative.

According to past experience, when the monetary policy committee mentions that it emphasizes "countercyclical adjustment", there will generally be RRR cuts or interest rate cuts in the next quarter.

When is countercyclical adjustment? What is cross-cycle regulation?

Simply understood, counter-cyclical policy is to push up when the economy is down, and press down when the economy is hot; Cross-cycle is a long-term policy that can be implemented regardless of the current economic situation - such as adjusting the economic structure, carbon emission reduction, green energy, credit support for small and micro enterprises, financial support for scientific research, etc.

So when we say counter-cyclical, it means to lift.

Then this time it is counter-cyclical, so it increases the probability of a RRR cut or rate cut in the coming months.

Didn't the statutory reserve ratio just cut in September?

Yes, as I just said, it has already fallen twice this year, but according to the current situation, it is not enough.

Moreover, special refinancing bonds are being issued, and there will be large-scale credit release in January next year, and there will be liquidity shortage during the Spring Festival, which will need to be accompanied by a loose monetary environment, so the probability of RRR reduction becomes greater.

In addition, interest rates may be cut in the fourth quarter, by about 10bp. This rate cut is more of a downward force in the market itself after the monetary easing is widened. At the same time, the deposit rate may also be reduced, so as to ensure the bank's profits.

With regard to inflation, the previous unbiased expression of "focusing on marginal changes in price trends" was abandoned, and instead it was intended to "promote the recovery of low prices".

This spirit is self-experiential.

CPI turned positive as expected in August, rising 0.1% y/y and 0.3% m/m, suggesting that the long-swirling shadow of deflation is dissipating and showing signs of recovery.

Compare the previous data: 0.1% in April, 0.2% in May, 0% in June, and in July it turned negative to -0.3%.

Why have prices begun to rise, and officials have said they want to "promote the recovery of low prices"?

Because in their view, prices reflect the temperature of the economy, and even act on the economy itself, and only when prices rise can they confirm that the economy is improving.

This is "textbook logic". For example, in order to stabilize the economy, Japan will no longer release water, vowing to maintain hard-won high inflation; The United States feels that the economy is overheating and raises interest rates to suppress inflation.

Now domestic prices have just shown signs of recovery, but this seedling is still very "tender", and the central bank must take care of it to grow up. That's why we once again emphasize "counter-cyclical adjustment" and "increase" financial support for "urban village transformation".

This is also a signal:

Don't be afraid that I will collect water because the price has risen a little, no, it is far from my goal.

Regarding the peripheral monetary environment, that is, the interest rate hike of the currencies of developed countries represented by the US dollar, the central bank's judgment is - "it will continue to remain high."

This is also close to the judgment of mainstream economists, the resilience of the US economy is stronger than expected, and the stickiness of inflation is higher than expected, so the pause in interest rate hikes will not be cut soon, and may consolidate at a high level for a long time.

How does this judgment affect us?

It is mainly to form a double-sided constraint on our real economy and monetary policy, and make a trade-off between "loose currency to save the economy" and "maintain the exchange rate".

To stabilize the economy and promote the recovery of low prices, it is necessary to release water (loose currency); But if the strength of the water release is not good, the exchange rate will be unbearable.

Therefore, in this third quarter meeting, the central bank obviously strengthened its expression on exchange rate control, mentioning:

"Correcting divergence"

"Guard against overshoot risks".

Exchange rate pressure has been relatively high in recent months, fluctuating around 7.3. At the foreign exchange self-regulatory mechanism meeting in early September, the central bank said that "strike when it's time to strike."

But fundamentally, the root of the exchange rate lies in fundamentals, not in the hands of central banks.

If the domestic economy continues to pick up and market confidence recovers, then the pressure on the RMB will be greatly eased.

Finally, send the original document of this central bank meeting in PDF format, and reading the original document can avoid your understanding bias.