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27 Feb 2014
Flash: PBoC sends subtle easing message - Nomura
FXStreet (Bali) - As Zhiwei Zhang, Economist at Nomura, notes, the People's Bank of China (PBoC) issued a statement through Xinhua on Feb 26, which suggests as a subtle easing message for the three reasons stated below.
Key Quotes
"1. The statement argues that "the repo operation is seasonal and not a change of monetary policy." The repo operation has been widely interpreted as a tightening measure, hence this statement seems to suggest that the PBoC is not tightening."
"2. The statement argues current money market interest rates are at reasonable levels. Because the 7-day repo rate is at a low level (close to 3% compared with around 4% before the holidays), this statement suggests the PBoC may be comfortable with keeping money market rates lower than before."
"3. The PBoC mentioned that, compared with central bank bills, the repo operation is flexible and has a limited impact on the total amount of liquidity. This suggests the PBoC has not tightened as it has not issued bills in 2014. Bond yields indeed dropped after the Chinese New Year.
The statement argues that the drop in the stock market is not owing to liquidity management by the PBoC because liquidity is abundant."
"This message indicates to us that monetary stance has been loosened subtly for now. There is an incentive for the PBoC to keep it loose from now until at least the end of the National People's Congress, which starts on 5 March and likely ends around 15 March."
"If the macro data to be released on 13 March (industrial production in particular) show a sharp slowdown, which we think is likely, policy easing may pick up speed. We continue to expect the government to cut the reserve requirement ratio by 50bp in Q2."
Key Quotes
"1. The statement argues that "the repo operation is seasonal and not a change of monetary policy." The repo operation has been widely interpreted as a tightening measure, hence this statement seems to suggest that the PBoC is not tightening."
"2. The statement argues current money market interest rates are at reasonable levels. Because the 7-day repo rate is at a low level (close to 3% compared with around 4% before the holidays), this statement suggests the PBoC may be comfortable with keeping money market rates lower than before."
"3. The PBoC mentioned that, compared with central bank bills, the repo operation is flexible and has a limited impact on the total amount of liquidity. This suggests the PBoC has not tightened as it has not issued bills in 2014. Bond yields indeed dropped after the Chinese New Year.
The statement argues that the drop in the stock market is not owing to liquidity management by the PBoC because liquidity is abundant."
"This message indicates to us that monetary stance has been loosened subtly for now. There is an incentive for the PBoC to keep it loose from now until at least the end of the National People's Congress, which starts on 5 March and likely ends around 15 March."
"If the macro data to be released on 13 March (industrial production in particular) show a sharp slowdown, which we think is likely, policy easing may pick up speed. We continue to expect the government to cut the reserve requirement ratio by 50bp in Q2."