11 Dec 2014
Do not expect substantial monetary policy easing in China – Nomura
FXStreet (Barcelona) - Research Analysts at Nomura anticipate China to follow a pragmatic approach towards easing, forecasting only a 25bps rate cut in Q2 2015.
Key Quotes
“We expect a pragmatic approach, or what we call a “two steps forward, one step back” strategy. If growth slows too sharply the government can “take one step back”, easing macro policies modestly. The “two steps forward” is to avoid too-loose macro policies so as to allow the property market correction and deleveraging processes to proceed, while pressing ahead with necessary structural reforms. The implication is not to expect front-loaded massive policy stimulus to drive growth higher; rather stimulus will more likely be drip-fed to ensure growth does not slow too sharply.”
“We forecast 50bp worth of reserve requirement ratio (RRR) cuts each quarter in 2015 (and see a rising risk of a RRR cut before end-2014) and only one more 25bp interest rate cut in Q2 2015. However, we still expect GDP growth to slow to 6.8% next year. The main risk to our view that could lead to more aggressive easing is if CPI inflation falls sharply in the coming months, raising concerns of a debt-deflation spiral.”
Key Quotes
“We expect a pragmatic approach, or what we call a “two steps forward, one step back” strategy. If growth slows too sharply the government can “take one step back”, easing macro policies modestly. The “two steps forward” is to avoid too-loose macro policies so as to allow the property market correction and deleveraging processes to proceed, while pressing ahead with necessary structural reforms. The implication is not to expect front-loaded massive policy stimulus to drive growth higher; rather stimulus will more likely be drip-fed to ensure growth does not slow too sharply.”
“We forecast 50bp worth of reserve requirement ratio (RRR) cuts each quarter in 2015 (and see a rising risk of a RRR cut before end-2014) and only one more 25bp interest rate cut in Q2 2015. However, we still expect GDP growth to slow to 6.8% next year. The main risk to our view that could lead to more aggressive easing is if CPI inflation falls sharply in the coming months, raising concerns of a debt-deflation spiral.”