Last Friday, when Premier Li Keqiang met with International Monetary Fund (IMF) Managing Director Kristalina Georgieva via video, she mentioned that China’s monetary policy would “cut RRR at an appropriate time.”
Therefore, many people feel that there is a taste of a “fire-line RRR cut” for the announcement of the RRR cut immediately after the market today. However, in the face of the last month of 2021, the uncertainty of the global market has suddenly increased, repeated epidemics have been superimposed and geopolitical risks are high. This time the RRR cut seems far-reaching. So what is the long-term logic of this wave of RRR cuts? What impact will it have on the market and our investment in 2022? Today we will come to the plate.
As I mentioned in many previous articles, China’s monetary policy has a roughly 18-month cycle. Let’s take a look back at the situation in the past 5 years: Currency is the blood of the economy. Monetary easing and monetary tightening are like a person with insufficient blood and full of blood. The state is completely different. I will give a few examples. In 2017, the monetary environment was tight. The main theme of that year was financial deleveraging—this was the peak of a round of intensive deleveraging since the establishment of the “supply-side reform” in September 2015. This round of fiscal tightening in 2017-2018 reached its climax in the first half of 2018, and the market was in pain. At that time, the “Mongol doctor” and “leaving the field theory” were all the rage. With the expansion of MLF in June 2018 and the one-time release of 500 billion MLF in July, it marks that this round of monetary tightening is coming to an end. The market is still falling in the second half of 2018, but expectations have begun to improve. The main theme of monetary policy in 2019 is loose, the market rebounded from the beginning of the year, and then rose generally. According to the 18-month cycle, the monetary policy should be tightened at the end of 2019, but the epidemic broke out in early 2020. In order to support the economy, China’s monetary policy was urgently relaxed. At the same time, the Federal Reserve promised to provide “unlimited liquidity”, and the European Central Bank also released water urgently. It is the epidemic that has disrupted the rhythm of monetary policy. As a result, within the originally tightened cycle, there has been a wave of loose episodes.
