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15 Apr 2015
Weak money and credit growth calls for more easing in China – Nomura
FXStreet (Barcelona) - Research Analysts at Nomura review the Chinese money and credit data release, and further see the need for more policy easing in China.
Key Quotes
“Both money and credit data surprised on the downside in March. M2 growth eased sharply to 11.6% y-o-y from 12.5% in February (Consensus and Nomura: 12.4%; Figure 1). Aggregate financing also dropped to RMB1.18trn from RMB1.35trn in February (Consensus: RMB1.5trn; Nomura: RMB2.7trn). We estimate the stock of aggregate financing grew by 12.7% y-o-y in March, from 13.8% in February.”
“The weak data call for more monetary easing, in our view.”
“Shadow banking credit continued to shrink sharply in March, which not only reflects the effects of the crackdown on shadow banking activity, but also weak demand from economic activity. Because of the high correlation between shadow banking and real estate investment, shrinking shadow banking business suggests the latter remains weak. It indicates that more interest rate cuts are needed to stimulate demand, in addition to RRR cuts which work more on credit supply side.”
“Overall, we continue to expect three 25bp cuts in the 1yr benchmark deposit rate (to 1.75%) and three 50bp RRR cuts (to 18%) this year, with one interest rate cut and one RRR cut each quarter. And the next policy easing may come as early as this month.”
Key Quotes
“Both money and credit data surprised on the downside in March. M2 growth eased sharply to 11.6% y-o-y from 12.5% in February (Consensus and Nomura: 12.4%; Figure 1). Aggregate financing also dropped to RMB1.18trn from RMB1.35trn in February (Consensus: RMB1.5trn; Nomura: RMB2.7trn). We estimate the stock of aggregate financing grew by 12.7% y-o-y in March, from 13.8% in February.”
“The weak data call for more monetary easing, in our view.”
“Shadow banking credit continued to shrink sharply in March, which not only reflects the effects of the crackdown on shadow banking activity, but also weak demand from economic activity. Because of the high correlation between shadow banking and real estate investment, shrinking shadow banking business suggests the latter remains weak. It indicates that more interest rate cuts are needed to stimulate demand, in addition to RRR cuts which work more on credit supply side.”
“Overall, we continue to expect three 25bp cuts in the 1yr benchmark deposit rate (to 1.75%) and three 50bp RRR cuts (to 18%) this year, with one interest rate cut and one RRR cut each quarter. And the next policy easing may come as early as this month.”