VIEW: ING: The Message Is Clear - Stability

In the wake of the RRR cut announcement ING note that “the liquidity injected will push short- and long-term interest rates moderately lower. But banks will still decide on whether to turn this liquidity into loans. If they do, real estate developers with high levels of debt should be avoided. The better alternative for banks would be to support state-backed infrastructure or increase mortgage-lending. Mortgages would also facilitate home sales, thus supporting the more prudent real estate developers which do not have urgent debt repayments. Given this RRR cut, we expect that fixed asset investment in infrastructure, transportation and telecommunications will rise in 2022, and should be the main engine of economic growth.”

• “This RRR cut is not targeted at small and medium-sized enterprises so we expect that there will be more low-interest rate financing schemes for SMEs, which will be part of the fiscal stimulus. We are waiting for the draft of the economic work report to evaluate how much fiscal stimulus is likely. We expect two large items in the draft; one for SMEs, another for achieving the zero carbon emissions target.”
• “This RRR cut gives a signal to the market that the government has turned from aggressive policy actions in the second half of this year to stabilising the economy in 2022. We forecast GDP growth of 5.4% for 2022 from a high base of 8.9% in 2021.”