China: Larger role for targeted credit policy – Nomura

Research Team at Nomura, notes that the People's Bank of China (PBoC) has released its Q1 monetary policy report.

Key Quotes

“Our key takeaways are:

1) The assessment of growth and inflation suggest to us that monetary policy will likely remain accommodative, but easing will be cautious and the pace will be slower:

2) A targeted credit policy will likely play a larger role in the next phase of the monetary policy.

3) The pace of credit expansion may slow, in our view.

4) The report also discusses the PBoC’s change in open market operations to daily from twice a week (Tuesday and Thursday).

Overall, this report reinforces our view that monetary policy easing will turn more cautious after the record-high credit expansion and property market rally in Q1, albeit with a policy stance that remains accommodative. Moreover, monetary easing may come more in the form of targeted easing, guided by the PSL, re-lending or re-discount facilities, which poses some downside risk to our call of three more RRR cuts and one benchmark rate cut this year.

For May, our Monetary Policy Signal Index, which measures the probability of monetary policy tightening or loosening, remains neutral indicating no cuts at all.

We maintain our view that investment growth will likely slow later this year and reiterate our forecast of GDP growth slowing to 6.2% in 2016 and 5.8% in 2017.”