Market Expectations For Easing Monetary Easing

CPI is neither warm nor cold; authoritative figures insist on implementing a prudent monetary policy, saying that there can be no need to leverage economic growth as a lever, while credit growth in April has failed.

There are signs that the market is expected to reduce monetary easing.

However, Hu Yuexiao, the chief macroeconomic analyst of Shanghai securities, believes that the current monetary growth depends mainly on the promotion of the currency multiplier, but the promotion of the Chinese currency multiplier is the end of the force, which is inevitable.

In the first ten years of twenty-first Century, in the face of the "double surplus" of current account and capital account, the Central Bank of China continued to raise the required reserve ratio to offset the inflationary pressure caused by foreign exchange inflows.

But with the inflow of foreign exchange into outflow, the central bank has begun to reduce the reserve ratio in the past two years to supplement liquidity and provide support for steady economic growth.

Even so, at present, the reserve requirement ratio of 17% of large banks and 15% of small and medium banks is still the highest level in the world.

In the economic downturn, the market expects more money loose, but the monetary authorities have consistently stressed the neutral tone of the policy keynote, and the actual behavior has also focused on the adjustment of monetary structure. In addition, the objective situation of excessive money has led to a great divergence in the market outlook for monetary easing.

But we still insist on the judgement that the money growth will steadily decrease.

"From September last year, China's foundation

Continuing to shrink, the growth of base money in March was down from -2.73 in February to -4.18.

At present, the broad currency (M2) can be maintained smoothly, depending on the increase of the monetary multiplier.

In order to maintain a relatively stable growth rate of broad money, China will soon reduce the deposit reserve ratio in order to maintain a high monetary multiplier. "

Hu Yuexiao pointed out.

The maintenance of the current monetary growth depends mainly on the increase of the monetary multiplier.

However, we insist that the improvement of China's monetary multiplier is the end of the battle.

China's basic monetary growth has been shrinking since September 2015.

In March, the growth rate of basic money grew from -2.73 in February to -4.18.

current

(M2) it can be maintained smoothly and depends entirely on the increase in the monetary multiplier.

We believe that the underlying currencies will grow negatively.

Change can be achieved.

In order to maintain a relatively stable growth rate of broad money, China will soon reduce its RRR to maintain a high monetary multiplier.

However, even if the RRR is down, the credit creation intensity of commercial banks will decline as the lending peak of commercial banks has passed, and the growth of money multiplier to M2 growth will be relatively limited.

Therefore, there will be a downward trend in monetary growth in the future. M2 growth will return below 13, which will be a big probability event.

Coincidentally, CICC also believes that it is necessary for the central bank to further reduce the deposit reserve requirement, because in the face of high legal reserve ratio, banks are increasingly relying on other channels to raise non deposit funds without reserve requirements in place of deposits.

However, since non deposit funds are more unstable than deposits, this may reduce the stability of the banking system.

In the face of high legal reserve ratio, banks take two measures.

First, banks reduce holdings of excess reserves.

In the 1 quarter of this year, the excess reserve requirement rate of 2% was at a relatively low level.

Second, banks can raise funds to replace deposits through other channels.

Accordingly, the ratio of reserve requirement to total bank liabilities, that is, the "effective" reserve ratio, will be lower than the required reserve ratio.

CICC found that the gap between them is expanding.

Banks are increasingly dependent on non depository sources of demand for non reserve requirements.

The "effective" reserve ratio may increase the momentum of bank credit expansion.

In the 1 quarter of this year, the growth of bank loans was so strong that the central bank had to conduct window guidance on credit delivery.

The "effective" reserve ratio lowers the implicit financing costs associated with reserve requirements, thereby enhancing its credit expansion capability.