Weekend, discussions on "reserve requirement ratio cut and interest rate cut" in the mainland flooded the screen.

The statement made by the central bank at last week's press conference on the financial situation in the first half of the year, regarding the interest rates on housing loans and the replacement of existing housing loans, has sparked heated discussions. Prior to the implementation of relevant policies, discussions surrounding "reserve requirement ratio cuts and interest rate reductions" have surged in popularity. According to the research reports currently available, there are differing opinions among various institutions regarding the possibility of reserve requirement ratio cuts and interest rate reductions in the near future. Tianfeng Securities believes that the likelihood of reserve requirement ratio cuts in the near term is low, with the earliest possible occurrence in September or October, while the window for interest rate reductions may be in the fourth quarter. Shenwan Hongyuan Securities indicates that a reduction in the interest rates on existing housing loans and deposit rates is expected, with a possible reserve requirement ratio cut of 25 basis points in July or August. Huachuang Securities also suggests an increased probability of reserve requirement ratio cuts since the beginning of the month. Regarding reserve requirement ratio cuts, Sun Binbin's team at Tianfeng Securities believes that although funding rates have increased and CD rates have risen on the eve of tax season, the necessity of reserve requirement ratio cuts is not particularly high compared to the first and second quarters of this year, considering the overall liquidity conditions. If we were to discuss reserve requirement ratio cuts, it would logically require further efforts in countercyclical policies, in order to support the use of structural tools and stabilize bank interest rate spreads. Based on historical trends, against the backdrop of further utilization of incremental policies between the third and fourth quarters, it is possible that reserve requirement ratio cuts may occur again in September or October. As for interest rate reductions, Tianfeng Securities states that it is unlikely for the central bank to reduce interest rates in the third quarter, with the earliest possible window in the fourth quarter. The three interest rate reductions in this round of easing cycles occurred in January 2022, August 2022, and June 2023, respectively. From this perspective, we believe that the likelihood of the central bank implementing consecutive interest rate reductions within two quarters is low. Furthermore, the three interest rate reductions in this round of easing cycles all took place against the backdrop of an unstable credit supply. The current financial conditions for interest rate reductions are slightly insufficient. The three interest rate reductions all faced significant challenges in boosting confidence among economic entities and market expectations to cope with the pressure of weakening expectations. It has only been one month since the interest rate reduction in June, and incremental policies are still being studied and formulated. Lastly, considering that overseas interest rate hikes have not yet ceased, the central bank's operations may still need to consider both internal and external balance. Shenwan Hongyuan Securities' Tu Qiang team believes that a reduction in the interest rates on existing housing loans and deposit rates, as well as a neutral reserve requirement ratio cut, can be expected in the near future. In this press conference, the central bank expressed an open attitude towards reducing the interest rates on existing housing loans or replacing existing loans with new loans. However, the factors constraining the reduction of interest rates on existing housing loans lie in the low net interest margins of banks, while residential loans are a major source of profits. The reduction of interest rates on existing residential loans will begin, but considering the game between banks and residents, the adjustment process will be prolonged rather than an immediate change. However, with the adjustment of interest rates on existing housing loans, the restoration of net interest margins for commercial banks still relies on the decrease in the cost of liabilities. Therefore, a reserve requirement ratio cut remains a more favorable choice, and the central bank has also conveyed this signal in this conference. Therefore, Shenwan Hongyuan Securities maintains its judgment of a 25 basis point reserve requirement ratio cut in July or August. In addition, Shenwan Hongyuan Securities believes that a reduction in deposit rates may occur in the near future, which would provide a more direct solution. The institution states that it may be possible to further lower deposit rates, as a reserve requirement ratio cut alone may not fully alleviate the pressure on net interest margins. The specific pace of adjustment may be related to the progress of the repricing of existing housing loans. Chinese-Thai Bank's Dai Zhifeng expressed that the possibility of a comprehensive reduction in existing housing loans is low. Reviewing the situation of interest rate adjustments for existing loans in 2008-2009, it is similar to the current situation. Both involve banks and individuals negotiating and amending contract agreements autonomously, or replacing existing loans with new ones. In the process of market-oriented negotiations and games, taking into account individuals' repayment ability, it is expected that the proportion of the reduction in existing housing loans will not be significant. Our calculations show that the proportion of loans enjoying interest rate replacement for existing housing loans in 2008 and 2009 was less than 6%. Zhang Yu's team from Huachuang Macro believes that the probability of a reserve requirement ratio cut has increased marginally since the beginning of the month. On the one hand, Director Zou Lan explicitly stated the comprehensive use of tools such as the reserve requirement ratio for deposits; on the other hand, it is judged that the signal indicators for a reserve requirement ratio cut (the central bank's claims on other deposit-taking companies/total assets of the central bank) have increased significantly in June. Huachuang Macro believes that because the current mortgage interest rates are still higher than the returns on residential purchases, stock investments, and wealth management, from the perspective of asset allocation, due to the lack of high-yield assets, early repayment may still be a more suitable choice compared to loan replacement.