Dr. Deng Haiqing, economist
First, the Fed’s pigeons are bright, and the overseas central banks are following closely.
Following the release of more than expected dovish remarks by the Fed in January, the attitude of other overseas central banks has further turned.
After the January meeting, Fed officials continued to release the dovish signal, while the European, Japanese, British and Australian central banks all lowered their economic growth expectations. The Bank of India even unexpectedly cut interest rates, and the "pigeon" sound spread throughout the country.
Under the expectation of unanimous actions of overseas central banks, will the Chinese central bank also usher in a time to cut interest rates?
Historically, the People’s Bank of ChinacurrencyThe policy has not blindly followed other central banks.
Second, 2014: overseas interest rate hike, the Chinese central bank lowered the rate cuts
In January 2014, the Fed reduced the size of QE, and Brazil, India, Turkey and other countries raised interest rates. At that time, we wrote a report on the overseas interest rate hike: Why is the Chinese central bank different? "The interest rate hike countries are mainly to cope with high inflation, exchange rate depreciation and capital flight pressure within their own countries. At the same time, the report puts forward that "the possibility of the Chinese central bank raising interest rates is very low, and there may even be a possibility of interest rate cuts."
In early 2014, China was significantly different from these emerging market countries: (1) Inflation, ChinaCPIBetween 2-3%, far lower than the aforementioned countries; (2) Exchange rate, the RMB has appreciated by 0.7% against the US dollar in the past three months, and has appreciated by 1.3% in the past six months. When the RMB is still strong, the capital flight pressure is very small.
At the same time, China was actuallyinterest rateIt has approached or even exceeded the upper limit of the real economy. In order to set aside the lead, the Fed should raise its interest rate in 2015, and the central bank's substantively tight monetary policy must achieve a soft landing in 2014. Otherwise, when the Fed raises interest rates in 2015, if there is a depreciation of the RMB and capital outflows, the People's Bank of China will have no room to raise interest rates and lack the means to cope.
In hindsight, the People's Bank of China did not raise interest rates because of the “overseas interest rate hike”; on the contrary, in 2014, the People's Bank of China began to cut the interest rate cut cycle.
Third, 2016: overseas interest rate cuts, the Chinese central bank to prevent risks, tight currency
From July to August 2016, four central banks in South Korea, Russia, Australia and the United Kingdom cut interest rates.The difference from the “overseas interest rate hike” in 2014 was that the logic of raising interest rates in overseas countries at that time was against high inflation, exchange rate depreciation, and capital flight, and the logic of interest rate cuts in this round of “overseas interest rate cuts” varied.
South Korea’s interest rate cuts are mainly due to Korean companiesReorganizationThe resulting economic concerns and the sluggish global trade. Russia’s interest rate cuts are very different from those of other countries.interest rateThe return to normal interest rates is mainly due to the containment of hyperinflation, and there is almost no intention of economic stimulus. The logic of Australia's interest rate cut is to fight against low inflation. The logic of the UK's interest rate cut is the short-term economic downturn brought about by the Brexit.
Our article published on August 5, 2016, "Overseas interest rate cuts: Why is the Chinese central bank different?" It pointed out that for the "overseas interest rate cut", we must first look at the reasons for overseas countries to cut interest rates, and then see if China has the same or similar reasons, and finally conclude what the Chinese central bank will do.
For China, the fundamentals of the above countries are different, so it is impossible to conclude that the People's Bank of China has to cut interest rates. For the 2016 China Central Bank, we believe that the possibility of a rate cut is small.
The first reason is that China's inflation center will not fall, and it will not enter deflation.
We believe that in the second half of 2016 and the half year of 2017, the probability of China's CPI is fluctuating between 1.5 and 2.5%, and the probability of the center dropping to 1.5% is small. First, commodity prices have risen systematically; second, labor costs remain high; third, China's economy has a high probability of stabilizing, and inflation lags behind economic growth, so inflation remains stable. Short-term inflation is due to a low base. After September, inflation will rise to more than 2%, and the central bank will not support interest rate cuts.
The second reason is that even if the government maintains growth, it will not pass the central bank's “wide currency”.
At that time, due to the lack of investment willingness of enterprises, there was an embarrassing situation in which enterprises had liquidity without investment, indicating that enterprises were caught in some form and some degree of “liquidity trap” and “asset shortage”. In the case of “liquidity trap” and “asset shortage”, continuing monetary easing can only further aggravate the “liquidity trap” and further aggravate the “asset shortage”, leading to asset price bubbles and triggering financial system risks.
Since then, the central bank's monetary policy has turned into an inflection point, focusing on restraining asset bubbles and preventing economic and financial risks, and the era of the currency is coming.
4. If the Chinese central bank cuts interest rates in 2019, what is the logic?
The People's Bank of China has monetary policy independence. It is not that other countries raise interest rates, and the Chinese central bank will raise interest rates. Similarly, other countries will cut interest rates and the Chinese central bank will not cut interest rates. China’s interest rate hike is still to cut interest rates. It depends on China’s fundamentals, not on other central banks.
In December 2018, the governor of the central bank, Yi Gang, said in his speech: "When internal equilibrium and external equilibrium create contradictions, we must focus on internal equilibrium and take into account external equilibrium to find an optimal balance point." People's Bank of China Currency Sun Guofeng, Director of the Policy Department, published an article in the "China Finance" in January this year, "Monetary Policy Review and Prospects", also pointed out that "China is an open large economy ... to adhere to the domestic economy and take into account external balance."
Looking forward to 2019, the People's Bank of China may cut interest rates, but the reason is not to follow the overseas central bank, but because of the downward pressure on the Chinese economy.
From recent economic data, DecemberPPIContinued downside, it is expected that the PPI will continue to decline in January, and the superimposed enterprises will take the initiative to destock. In the future, the deflationary pressure of the Chinese economy will be extremely severe, and the growth rate of corporate profits will continue to bottom out. Fourth quarterGDPFall back to the lowest value since 1992, the same as the first quarter of 2009 during the financial crisis; DecemberThe total retail sales of social consumer goodsThe year-on-year growth rate was the second lowest in 2018 and the second lowest since June 2003, much lower than the 2008 financial crisis and the economic downturn in 2014-2015.Fixed asset investmentThe growth rate remained low, and the growth rate of real estate investment continued to decline. Infrastructure investment was subject to the strict control of hidden debts and the impact of “opening the door to block the door”. Strong stimulus is difficult to reproduce.
Therefore, the downward pressure on China's economy still exists in 2019. In order to prevent the economic fall, the monetary and fiscal policies should provide sufficient hedging power. From this perspective, the Chinese central bank's monetary policy has room for further easing.The impact of overseas factors on China's central bank's monetary policy is that the global economic downturn has further exacerbated the downward pressure on China's economy, rather than because the overseas central bank cut interest rates, the Chinese central bank will follow interest rate cuts.
The bond bull market will continue in 2019.We first saw more Chinese bond markets in early 2018 and have been fully verified. For 2019, China's economic downward pressure still exists, and there is still room for overweight in monetary policy. From the bond yield rate compared with the current macroeconomic, monetary policy, and money market interest rates, the bond bull market will continue.
(Article source: WeChat public number Haiqing FICC channel)
(Original title: Overseas interest rate cuts reappear: Why is the Chinese central bank joining this time?)