Before the strengthening of the US dollar, is there a golden opportunity for reserve requirement ratio cuts?
Based on the given information, this falls under macroeconomic-related information. According to Huajin Securities, they expect the first rate cut by the Federal Reserve to occur no earlier than September 2024, and the US dollar index may rebound in 2024. For China's monetary policy, the current period is a critical window of opportunity, and a reserve requirement ratio cut can be considered. In addition, it is expected that the MLF rate and 1Y LPR can be lowered, while the reduction in 5Y LPR is relatively narrow. Based on this information, it can be concluded that a reserve requirement ratio cut in January is an ideal choice. The expected reduction is 50 basis points, or a decrease of around 10 basis points for the MLF rate and 1Y LPR.
Huajin Securities believes that we expect the first interest rate cut by the Federal Reserve to be no earlier than September 2024. There is a risk of a shift towards a hawkish stance at the first FOMC meeting ending on January 31, 2024. The Invesco DB US DLR Index TR Bullish Fund may rebound and not continue to decline in 2024. The active operation of our monetary policy needs to pay attention to the key window period when the Invesco DB US DLR Index TR Bullish Fund remains at a low level, such as the current month of January. The long-term liquidity in the domestic interbank market has tightened again before the Spring Festival. After implementing a large-scale MLF and PSL net injection in December, a 50 basis point reserve requirement cut or a quantity-based monetary policy tool is the most ideal choice before the Spring Festival. From the perspective of external pressure, the risk of the US dollar turning upward, which we clearly indicated at the end of 2023, has been validated before and after the release of the December US non-farm payroll data. This means that before the first FOMC meeting of the Federal Reserve in late January 2024, the Invesco DB US DLR Index TR Bullish Fund has not experienced a significant rebound, which constitutes a golden window period for the People's Bank of China to consider reserve requirement cuts (as well as interest rate cuts as an option). During this period, the renminbi has not yet faced a new round of significant depreciation pressure, and it coincides with the pre-holiday period when long-term liquidity is most concentrated during the year. We believe that it is very ideal to choose to implement a reserve requirement cut at this time. We maintain our prediction of a 50 basis point reserve requirement cut before the Spring Festival, and we expect that as an option, we can also consider implementing a 10 basis point reduction in MLF rates and 1-year LPR, while the reduction in 5-year LPR is expected to be relatively narrow, possibly 0-5 basis points.