Event

On May 20, 2022, the LPR quoted price announced: the one-year loan market quoted interest rate (LPR) is 3.7%; the 5-year loan market quoted interest rate (LPR) is 4.45%. 1-year LPR quotation is the same as before, 5-year LPR quotation is lower than April 15BP.

Viewpoint

The 1-year and 5-year LPR fell asymmetrically, and the downward bank deposit rate became an important driving force.LPR shows the characteristics of asymmetric downward adjustment. The reasons for the unchanged 1-year LPR and 5-year LPR are as follows: first, the reserve requirement reduction and the market-oriented reform of deposit interest rate have reduced the debt cost of banks, creating objective conditions for the reduction of LPR. According to our report on April 19, 2022, "Policy interest rates remain unchanged, is there room for LPR to reduce?" It is estimated that the across-the-board reduction of 25BP will reduce the debt cost of the LPR quotation bank by about 0.3BP, while the reduction of deposit interest rate will be discussed in three situations, namely, 10BP, 7BP and 3BP, respectively. From the perspective of practical effect, the market-oriented reform of deposit interest rate is mentioned in columns 1 and 3 of China's Monetary Policy implementation report in the first quarter of 2022 released by the central bank. According to the latest survey data, in the last week of April 2022 (April 25-May 1), the weighted average interest rate on new deposits in financial institutions across the country was 2.37%, down 10 basis points from the previous week. This decline is closer to the maximum in scenario analysis, so there is plenty of room for LPR reduction from the perspective of debt cost. Second, the triple pressure faced by economic development still exists. Reducing the five-year LPR will help to stimulate the medium-and long-term loan demand of enterprises, and at the same time, under the idea of "housing speculation", we should give full play to the supporting function of real estate to the economy. 5-year LPR affects the medium-and long-term loan costs of enterprises, investment in fixed assets and personal commercial housing loans. The total amount and structure of the current social financing scale are not good. Lowering the 5-year LPR will help to stimulate the demand for physical financing.

At the same time, on May 15, 2022, the central bank issued a differential housing credit policy. For households who buy ordinary self-housing with loans, the lower limit of the interest rate of the first housing commercial individual housing loan is not lower than the quoted interest rate of the corresponding loan market minus 20 basis points. Combined with the real estate easing policy in many places since the beginning of 2022, the supporting function of real estate to the economy appears.

The liquidity of the market is abundant and the demand for real financing is weak, so the non-synchronous reduction of MLF interest rates and LPR is realistic.On May 16, 2022, the central bank launched MLF, and the operating interest rate remained unchanged. As the MLF operating rate is the pricing "anchor" of LPR, this reduction is asynchronous. This is related to the abundant liquidity in the market and the weak demand for physical financing, and the reduction of LPR alone can make liquidity not excessive silt in the capital market. The 7-day reverse repo rate and the MLF operating rate can be used as the policy interest rate, while the DR007 and interbank deposit rate can be used as the corresponding market interest rate, both of which have a continuous upside down of the policy rate and the market rate.

As far as the interbank deposit rate is concerned, if the physical financing demand is strong, the bank needs to replenish its liabilities to meet the expansion of the asset end, and the deposit rate goes up, and vice versa. As of May 19, 2022, the maturity rate of 1-year AAA interbank certificate of deposit is 2.2552%. The one-year MLF operating rate is 2.85%, and the difference is 59.48BP. The situation of excessive liquidity accumulation in the capital market is more obvious.

Bond market viewpoint:While monetary policy remains relatively loose and Xiaobai Maimai Inc demand has not yet been fully released, market liquidity remains abundant, supporting the decline in bond yields, especially short-term bond yields. Looking forward to the later stage, from a fundamental point of view, the economy is in the process of gradual repair, and the pace of recovery is closer to the "U" shape. From a policy point of view, the strength of structural tools and the reduction of LPR show that the focus is on "broad credit". Taken together, the attitude towards bonds can be cautious in the short term, but in view of the "U" repair of the economy, it is difficult for interest rates to reverse in "V" shape.

Risk Tips:(1) the macroeconomic growth rate is lower than expected: the epidemic repeatedly overlaps the imbalance in the internal structure of the economy or causes the economy to decline more than expected; (2) the monetary policy turns: if the economy stalls and goes down, the policy may be relaxed to hedge.