VIEW: J.P.Morgan On Today’s 1-Year LPR Cut

J.P.Morgan note that “the RRR cut and LPR cut in December suggest that monetary policy adjustment no longer restricts itself to structural measures. As the economy is facing downward pressure from demand, supply and expectations, “stability” has become the keyword for economic policy in 2022. We expect fiscal and monetary policy tightening as observed in 2021 will not be repeated in 2022, and there is room for fiscal and monetary easing. Today’s announcement opens the possibility for a further RRR cut and rate cut in 2022. Nonetheless, we do not anticipate it will turn into fiscal or monetary stimulus in 2022. On the credit policy front, even modest upside to our baseline forecast of TSF growth (10%) implies that TSF growth will only be 1-2ppts higher than nominal GDP growth. On the rate side, the fact that MLF stayed unchanged in December and the smallest step in the 1-year LPR cut suggest a reluctance for more aggressive policy actions (which in our view are justifiable), and the room for rate cuts should gradually shrink in the next 1-2 quarters as other central banks enter a policy rate hike cycle (including the Fed’s first rate hike in June 2022 based on JPM forecasts).”