China's Central Bank Monetary Policy Returns To "Micro Operation" Rhythm

From the perspective of economic and inflation combination, we believe that the logic of monetary easing has always existed.

In terms of economy, PMI was only 50.3 in November, of which the new order index of demand side was only 50.9, which fell sharply compared with 51.6 in October, while the employment index was only 48.3, far below the 50 divide.

From the perspective of exports in November, the growth rate was only 4.7%, and the growth rate of the US, Europe and emerging markets all dropped significantly. This reflects the slowdown in external demand and the weakening of domestic demand. In terms of prices, the CPI growth in November was only 1.4%. The supply side "pig cycle" no longer inflate upward pressure on inflation. It was affected by domestic overcapacity and low demand, and the impact of the sharp drop in oil prices in Shanghai and the PPI decline in the month expanded to 2.7%, making the risk of deflation in industrial production continue to increase. The combination of economic downturns and deflation will undoubtedly make loose monetary policy quite necessary.

From the financial market, maintaining liquidity and stabilizing market expectations is also a central bank's responsibility. In the near future, the notice issued by China Securities Regulatory Commission limited the qualification of corporate bond repurchase in the exchange market, increased the liquidity risk of the bond market, and the yield of the 10 year treasury bond and the national debt rose to 3.8% and 4.4% respectively. In addition, due to the upward trend of earnings, according to Bloomberg statistics to December 10th, there were 36 billion 800 million short, medium and financial debt cancellation and delayed issuance, which is obviously unfavorable for reducing the financing cost of enterprises. In addition, with the issuance of the seventh batch of IPO during the year, 12 companies such as Guoxin, Chunqiu and so on began to raise funds, and it is expected to freeze more than 1 trillion and 500 billion yuan of funds. This is also a great pressure on the capital side. At present, the inter-bank lending rate of 1 months is as high as 5.6%, which is 70 BP compared to the rate cut in November 21st. We believe that the central bank's interest rate stability is also needed to provide liquidity.

Nevertheless, we do not think that the monetary policy of the central bank will again become a comprehensive lenient in the year.

First, the central bank needs time to measure the policy effect of interest rate reduction in November, such as the degree of corporate financing cost reduction and whether the economic growth kinetic energy has been restored.

Second, the prevention of financial risks is also the responsibility of the central bank. The sharp rise and fall of the stock market caused by leverage is also unacceptable to the regulators. At present, the cross market "carry trade" in low interest rate environment requires the coordinated supervision between the SFC, the CBRC and the central bank. Therefore, before the parties reach a unified regulatory framework, adopting a comprehensive policy easing will encourage the "moral hazard" sentiment in the market, which makes the central bank's attitude more cautious.

Third, the devaluation of the RMB exchange rate has restricted the monetary easing policy space. In the offshore market with a high degree of marketization, the implied yield of RMB rose sharply to 4.37% in 3 months, reflecting premium rise. We understand that if the central bank adopts a more radical monetary policy, it will easily lead to panic among overseas investors, which will lead to an increase in the expectation of depreciation.

Of course, this does not mean that the central bank is blind to the volatility of the financial market. We expect that "micro operation" will be the main way in the future, such as SLF, MLF and other innovative monetary policies to provide market liquidity, and ensure that the interest rate of the lending market is stable. In addition, the dual rate corridor of "interest rate exchange rate" will form a new framework of price instruments for the central bank to regulate monetary and foreign exchange markets simultaneously.

From the point of exchange rate, we tend to be in a weak position in the coming quarter. The reason lies in the changes of the domestic and overseas economic and financial environment.

First, November Exit The growth rate is only 4.7%, indicating that the growth of external demand has dropped. We have observed that after the sustained appreciation in May, the real effective exchange rate of RMB in October reached 121.6, which has returned to the high point before January.

Secondly, along with Federal Reserve After leaving the QE, the Morgan JP emerging market currency index declined from 89 to 79 and the depreciation rate reached 11% after May. Considering the relative stability of the RMB against the US dollar, the passive appreciation rate of the RMB against other non US dollar effective currencies is close to 13%, so the moderate depreciation can relieve the pressure of passive early appreciation.

Third, the overseas economic and financial environment will push up the US dollar exchange rate. On the one hand, with the US economy improving, the Fed meeting on December may raise guidelines on raising interest rates, while abandoning the promise of "maintaining low interest rates for a long time", which promotes the interest rate of the US dollar and the US bond going up; on the other hand, the uncertain political prospects of Greece and Japan in Europe lead to a fall in the risk preference of investors, and the risk aversion is also beneficial to the US dollar exchange rate. 16. Therefore, the weakening of the renminbi may reserve a certain space for the "further pegging" after the accelerated appreciation of the US dollar.

We understand that the depreciation of the renminbi in the early period to more than 6.20 is more based on the demand for risk avoidance spanactions based on market expectations rather than on the basis of customers' expectations. Capital outflow Pressure. On the basis of the current capital account's orderly management, the possibility of large-scale capital outflow in the future is not great. The central bank can maintain the relative stability of the exchange rate through appropriate market intervention, and choose the timing of intervention with the goal of currency delivery and support for exports. From the perspective of the combination of price instruments in two rate corridors, the RMB will weaken in the next period of time, and the low interest rate between banks will be the mainstream. At the same time, as for the exchange rate itself, with the diversification of participants, the elasticity of exchange rate will further improve, which, to a certain extent, also increases the flexibility of the central bank policy mix.