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3 Apr 2015
Door open for further PBoC easing – Rabobank
FXStreet (Edinburgh) - Michael Every, Strategist at Rabobank, expects the PBoC to ease further in the upcoming periods.
Key Quotes
“PBOC Governor Zhou Xiaochuan noted that the economy had slowed “a bit too sharply” and that policy makers have to respond, while he needs to be “vigilant” about the risks of deflation”.
“For a very conservative, and quiet, central bank, those are significant signals. (And we note that the BoE has included a slowdown in Chinese growth to just 2.0% y-o-y in its 2015 stress tests! They won’t be getting any fan-mail from the PBOC.)”.
“Indeed, speculation in markets has begun to build that we may soon be looking at Chinese QE. However, that seems unlikely for now for several reasons”.
“First, we already have ‘stealth stimulus’ in place, whereby the PBOC uses a re-lending facility to channel funds directly to state-owned construction banks, who then use it to build infrastructure”.
“Second, the PBOC is already getting the ‘fun’ part of QE –asset prices (in this case, equities) totally out of line with economic fundamentals– without even starting QE properly”.
“Thirdly, China seems insistent on maintaining currency stability at present, even as the real economy is screaming out for a weaker CNY”.
“Nonetheless, we maintain our view that eventually we will see the ‘second leg’ of QE – a weaker currency. The economic data say it is needed; the 13.6% y-o-y gain in the trade-weighted CNY index as of end-Q1 says it is needed; and the PBOC are starting to say so out loud too”.
Key Quotes
“PBOC Governor Zhou Xiaochuan noted that the economy had slowed “a bit too sharply” and that policy makers have to respond, while he needs to be “vigilant” about the risks of deflation”.
“For a very conservative, and quiet, central bank, those are significant signals. (And we note that the BoE has included a slowdown in Chinese growth to just 2.0% y-o-y in its 2015 stress tests! They won’t be getting any fan-mail from the PBOC.)”.
“Indeed, speculation in markets has begun to build that we may soon be looking at Chinese QE. However, that seems unlikely for now for several reasons”.
“First, we already have ‘stealth stimulus’ in place, whereby the PBOC uses a re-lending facility to channel funds directly to state-owned construction banks, who then use it to build infrastructure”.
“Second, the PBOC is already getting the ‘fun’ part of QE –asset prices (in this case, equities) totally out of line with economic fundamentals– without even starting QE properly”.
“Thirdly, China seems insistent on maintaining currency stability at present, even as the real economy is screaming out for a weaker CNY”.
“Nonetheless, we maintain our view that eventually we will see the ‘second leg’ of QE – a weaker currency. The economic data say it is needed; the 13.6% y-o-y gain in the trade-weighted CNY index as of end-Q1 says it is needed; and the PBOC are starting to say so out loud too”.