29 Apr 2015
QE an options for China? - BBH
FXStreet (Guatemala) - Analysts at Brown Brothers Harriman explained that they do not feel QE is coming in China.
Key Quotes:
"At first blush, we don’t think so. GDP growth is clearly slowing, though the data are hardly reliable. Yet from what we can tell, the current growth trajectory doesn’t yet warrant what we view as a “nuclear option” of QE. Liquidity is plentiful, with the key 7-day repo currently slipping further below 2.5% to multi-year lows. The 10-year government bond yield is around 3.5%, also near multi-year lows. Equity markets in China are already flying high, and investors hardly need any more reasons to buy. "
"Bank lending and money growth have slowed. However, bank lending in China has never really been about market-based decisions, but rather largely directed by officials. For instance, targeted RRR cuts for various sector banks (such as agriculture) is the typical Modus Operandi for policymakers in China."
"We repeat the possibility that Chinese policymakers would use unconventional measures to tackle problems that are unique to China. That is, the usual reasons for QE seen in the developed markets (deflation, economic crisis) may not be in China’s reaction function."
Key Quotes:
"At first blush, we don’t think so. GDP growth is clearly slowing, though the data are hardly reliable. Yet from what we can tell, the current growth trajectory doesn’t yet warrant what we view as a “nuclear option” of QE. Liquidity is plentiful, with the key 7-day repo currently slipping further below 2.5% to multi-year lows. The 10-year government bond yield is around 3.5%, also near multi-year lows. Equity markets in China are already flying high, and investors hardly need any more reasons to buy. "
"Bank lending and money growth have slowed. However, bank lending in China has never really been about market-based decisions, but rather largely directed by officials. For instance, targeted RRR cuts for various sector banks (such as agriculture) is the typical Modus Operandi for policymakers in China."
"We repeat the possibility that Chinese policymakers would use unconventional measures to tackle problems that are unique to China. That is, the usual reasons for QE seen in the developed markets (deflation, economic crisis) may not be in China’s reaction function."