Loose Monetary Policy Is More Likely To Cut Interest Rates

We may soon see the central bank's interest rate cut or reduction, and the fastest we can see in October.

In October 19th, the three quarter economic data will be released, and GDP will be broken down by 7. Whether it is 6.7 or 6.8 is a data that needs to be taken by the central bank.

Loose monetary policy in sight

First, it is often before and after bad data or bad news is released.

The aim is hedging.

Most of the seven interest rate cuts or reductions in the past year have obvious hedging characteristics.

For example, in February 5th, a quasi hedge against deflation in January (CPI hit a new low of 0.8%). In April 20th, the first quarter of GDP fell sharply. In May 11th, the interest rate cut was reduced in May 11th, and April deflation (CPI down to 1.2%).

And the loss of foreign exchange.

This month is the critical period for the three quarter ending and the fourth quarter opening. In October 19th, the three quarter economic data will be released. The GDP break 7 is basically determined. Whether it is 6.7 or 6.8, it is a data that requires the central bank to take big action.

Second, the central bank usually follows the "big move" after the "small move".

Lowering interest rates is a great move for the central bank. It is relatively prudent to adopt. It usually uses "small strokes" to pave the way for the big move. It is called "pre tuning fine tuning" and "camera control".

For example, before lowering interest rates, we should reverse the interest rate of the reverse repo, and guide the interest rate downwards. For example, before releasing the long-term liquidity, we can release the short term medium-term liquidity through reverse repurchase and MLF.

Recently, we have seen similar signals. The central bank first continued to invest net money through reverse repurchase to stabilize interest rate fluctuations, and then through credit asset pledge refinancing to expand the pilot to stimulate credit.

Of course, some people say this.

This is a big move. This is actually a misunderstanding.

Banks take credit assets to change money to the central bank's mortgage, which is indeed a lever increase, but the rate of reduction is much smaller than that of the rate reduction. Because there are strict restrictions: first, designated banks designated areas; two, the central bank sets mortgage rates; three is designated credit assets, four is the need for applications.

The core of this pilot project is to change the way in which basic currencies are put into operation, rather than monetary easing.

Third, internal inflation and external market conditions open space for monetary easing.

Since the end of the two quarter, the two factors restricting monetary easing are inflation and the Fed's interest rate raising problems are weakening.

Two signs: first, since August, the price of pork has continued to fall, and during the national day, it continues to fall. After taking the pressure off the pig price, it is a foregone conclusion that CPI falls back to below 2%, while the PPI decline rate is above 5%. Therefore, it is envisaged that the fear of deflation will soon come back.

The two is the continuous appreciation of the RMB exchange rate.

The RMB on the coast, offshore renminbi and the central parity have appreciated since September. Since the 811 exchange rate reform, the fluctuation has basically been digested and the pressure of capital outflow has eased.

On the whole, we may soon see the central bank's interest rate cut or reduction, and the fastest we can see in October.

Judging from the choice of tools, the possibility of reducing interest rates is greater than the drop in accuracy.

More likely to cut interest rates

First, inflation fell to open space for reducing nominal interest rates.

Since the two quarter, CPI has been rising continuously under the impetus of the pig cycle. When the nominal interest rate remains unchanged, the real interest rate will decline, and if CPI starts to decline again, it is equivalent to pushing up the real interest rate again.

A simple calculation based on a 1 year deposit rate minus CPI means that negative interest rates may return to zero interest rates.

If we want to continue to lower the real interest rate, we can only cut interest rates again.

Secondly, there is no obvious tension between banks and there is little significance in reducing liquidity.

Whether it's a hot corporate debt or a surge in housing prices in the first tier cities, it reflects that the market is not bad.

The market is not bad money mainly stems from the lack of real economic assets, resulting in weak demand for banks, enterprises and residents plus lever financing, and accumulation of funds among banks.

The key issue now is to expand credit to solve the credit expansion of entities rather than interbank monetary expansion.

However, if the interbank interest rate has a higher upward pressure, the probability of falling in the four quarter will still exist.

The possible reasons for this phenomenon include: first, the real growth of steady growth and the huge expansion of capital demand brought by investment.

Second, the Fed's rate hike is expected to be strengthened again. The devaluation of the renminbi has led to a sharp decline in foreign exchange reserves, and there is a gap in the supply of basic money.

Third, the stock market is booming again, the volume of pactions continues to enlarge and the interbank funds are diverted.

Fourth, the real estate investment has obviously recovered, and the real estate investment has increased by 3.5% in the 1-8 month, which has lost a large amount of credit demand.

At present, although this possibility is small, it is not impossible.

On the one hand, the first tier cities have significantly increased their land supply. On the other hand, real estate companies have issued large amounts of debt financing, creating conditions for the rebound in real estate investment.

But for now, it seems that we have not seen enough impact on the central bank, so the rate of interest reduction is even greater than that of the reduction.