25 Aug 2015
PBOC: Big-bang stimulus package looming? - Nomura
FXStreet (Bali) - Nomura Asia Economics Team, in a note to clients, does not rule out a big-bang stimulus package of measures – monetary, fiscal, and stock market stabilisation – by China, in order to generate a maximum signaling effect, they write.
Key Quotes
"We expect two 50bp reserve requirement ratio (RRR) cuts and one 25bp interest rate cut over the remainder of this year, but, at 18.5% for big banks, we would not rule out larger incremental cuts to the RRR, now that FX intervention to limit RMB depreciation is tightening money market conditions."
"Greater use of the PBoC’s pledged supplementary loans and further easing of local government finances through more debt swaps are also possible. Finally, the likelihood of a more traditional 2008-style fiscal stimulus is rising, although it would likely be more carefully targeted at areas that need more investment, such as urban transportation systems, water infrastructure, green technologies, IT, healthcare and education."
"Overall, we do not rule out a big-bang stimulus package of measures – monetary, fiscal, and stock market stabilisation – to generate a maximum signaling effect. As highlighted above, we currently do not think that a large one-off RMB devaluation is the first line of defence, as the benefits (to exports) would be outweighed by the costs (precipitating larger capital outflows, triggering some defaults on FX debt, catalyst for a regional currency war, protectionist backlash)."
Key Quotes
"We expect two 50bp reserve requirement ratio (RRR) cuts and one 25bp interest rate cut over the remainder of this year, but, at 18.5% for big banks, we would not rule out larger incremental cuts to the RRR, now that FX intervention to limit RMB depreciation is tightening money market conditions."
"Greater use of the PBoC’s pledged supplementary loans and further easing of local government finances through more debt swaps are also possible. Finally, the likelihood of a more traditional 2008-style fiscal stimulus is rising, although it would likely be more carefully targeted at areas that need more investment, such as urban transportation systems, water infrastructure, green technologies, IT, healthcare and education."
"Overall, we do not rule out a big-bang stimulus package of measures – monetary, fiscal, and stock market stabilisation – to generate a maximum signaling effect. As highlighted above, we currently do not think that a large one-off RMB devaluation is the first line of defence, as the benefits (to exports) would be outweighed by the costs (precipitating larger capital outflows, triggering some defaults on FX debt, catalyst for a regional currency war, protectionist backlash)."