The previous week, Liu Guoqiang said that in the next step, the peoples Bank of China will continue to maintain reasonable and abundant liquidity, promote LPR reform, continue to release the potential of financial institutions to reduce loan interest rates, promote a significant decline in the actual interest rate level of loans, and ensure that there is significant progress in solving the financing difficulties of small and micro enterprises. The deposit benchmark interest rate is the ballast stone of Chinas interest rate system, which will be kept for a long time. In the future, the peoples Bank of China will, in accordance with the deployment of the State Council, take into account the basic conditions of economic growth and price level, and make appropriate adjustments in due time.
How much space is there for interest rate and standard reduction?
Zheshang Securities believes that the angle of hedging the downward pressure of the real economy: under the influence of the current epidemic, the short-term economic pressure is increasing, and the necessity of deposit interest rate reduction is rising; the angle of guiding the social financing cost to fall: under the background of LPR anchor change and interest rate reduction, it is necessary to maintain the banks moderate profitability to support the real economy. At present, the benchmark interest rate of demand deposit is only 0.35%, and there is limited space for reduction; the benchmark interest rate of one-year fixed deposit is 1.5%, which has more space for reduction. Considering that LPR is gradually reduced by a small margin, it is expected that the deposit benchmark interest rate will be reduced by a large margin at one time, which is likely to be jogging.
According to Zhongtai securities, from the experience of other economies, the level of interest rate is often roughly the same as the economic growth. For example, the trend of us 10-year bond interest rate and nominal GDP growth is almost the same, and the gap between them is basically around zero. Japan and South Korea are similar. Although Chinas economic growth rate is very high, the interest rate level is not high. Before 2008, the gap between the interest rate of 10-year Treasury bonds and the growth rate of nominal GDP was more than 10%. After 2008, with the economic growth rate falling, the gap between the two is still large, which remains at 5%. Compared with other economies, Chinas economic growth rate is very high, but the interest rate level is not high. The fundamental reason is that the return on capital is low, which is mainly related to the investment efficiency of China. In the past decade, Chinas return on capital has declined significantly, but the interest rate has been flat, mainly because the real estate and local government implicit debt support high interest rates. The changes of these two factors will inevitably lead to the decline of interest rate in China. The main interest rate indicators in this round are likely to break through 2015-2016 low and create a new low. If calculated according to the return on capital, the interest rate of Chinas seven-day reverse repo policy is expected to fall below 2.25%, the one-year MLF is expected to fall below 2.85%, and the interest rate of ten-year Treasury bonds is expected to fall near 2.6%.
China Merchants Securities believes that with the weakening of inflation and exchange rate constraints and the opening of domestic monetary policy space, the interest rate reduction is expected to continue and the interest rate reduction cycle may have started under the demands of stable growth and guiding the downward financing cost. Under the economic downward pressure and the goal of reducing the financing cost of the real economy, the domestic interest rate reduction is necessary to increase. Under the current monetary policy control framework, the benchmark interest rate of loans will gradually withdraw from the market. The open market operating interest rate has become an important part of guiding the downward trend of loan interest rate. It is expected that the central bank will continue to reduce interest rates through the reduction of Omo and MLF interest rates.
Guosheng Securities believes that from the current situation, it is expected that the one-year LPR rate will be reduced by 30-40bp throughout the year. On the other hand, due to the existence of the deposit benchmark interest rate and the pressure of holding deposits, the current effect of reducing the reserve and MLF on reducing the banks liability side cost is limited. In the case of the epidemic, reducing the benchmark deposit rate will help to improve the banks balance sheet structure. However, in view of the high rate of CPI over 4% in the first half of the year, it is not difficult to judge that lowering the deposit interest rate may lead to the loss of deposits. Therefore, it is necessary for the central bank to lower the benchmark deposit interest rate. In consideration of the central banks intention to gradually weaken the role of benchmark interest rate, the way of reducing deposit interest rate is not exclusive to the market-oriented way except directly lowering the original benchmark. In view of the credit release at the end of the quarter and the centralized maturity of MLF in April, March to April may be a better window period for another reduction of the standard, and the need for targeted reduction is greater. It is expected that the range of subsequent comprehensive reduction and targeted reduction will be 50-100bp.
Which assets will benefit from interest rate reduction?
Haitong Securities believes that the central bank recently lowered MLF and LPR interest rates through the open market liquidity, and also stated that in the future, the benchmark deposit rate will be adjusted appropriately. For example, the interest rate is lowered, the undervalued bank real estate is expected to be repaired, and the securities companies are medium-term high-quality products.
As of 2020 / 2 / 25, the banks real estate dividend ratio is 4.1% and 3.0%. The securities industry Pb is in the 22.7% quantile since 201058, roe is in the 25% quantile, insurance industry Pb is in the 26.8% quantile, roe 100% quantile, real estate industry Pb is in the 1.3% quantile, roe is in the 83.1% quantile, bank Pb is in the 0.3% quantile, roe is in the 1.7% quantile. From the perspective of the matching degree of profit valuation of various industries, taking the CSI 300 index as the benchmark, the Pb of CSI 300 is in the historical quantile of 26.0% and roe of 13.6% since 2005, and the matching degree of profit valuation of securities and real estate is good.
Zheshang Securities believes that stock banks and city commercial banks benefit most from deposit interest rate reduction. When the benchmark interest rate of fixed deposits is lowered by 10bp (assuming that the active liability interest rate is decreased by 10bp simultaneously), the average net interest margin of listed banks can be increased by 6.5bp, and the marginal contribution revenue is 3.2% (measured in the first three quarters of 2019). At the end of 2019h1 (total liabilities current deposits) / total assets is used to measure the proportion of interest rate sensitive liabilities. The share-holding banks and urban commercial banks account for the highest proportion, most benefiting from deposit rate reduction. The core assets of banking stocks are mainly recommended, including industrial bank, Pingan bank and postal savings bank, among which Industrial Bank and Pingan bank cut more marginal benefit deposits.
Guangzhou futures believes that the devaluation of currency and the expectation of rising inflation brought by the interest rate reduction make gold as a zero interest asset more attractive. Although this weeks rapid cumulative increase makes some speculators have the intention to profit, the short-term gold price or a correction from the high level does not change the medium and long-term rise logic. If the central banks interest rate reduction policy is coordinated, the international gold price is expected to reach the target of 1700 US dollars / ounce in the year.