ANZ: Broader Policy Changes Are Needed

ANZ note that “going forward, we believe that China’s monetary policy will be highly data-dependant. The effect of the 10bp cut will be passed onto loan prime rates (LPR) next Monday. In addition, we have pencilled in a 50bp RRR cut in H2 because of CNY2.6trn of maturing MLF loans in the next few months. In our view, however, the impact of all the stimulus pledged so far is fairly limited. A small interest rate cut is insufficient to boost domestic demand, while the current policy rate has stayed below market rate for quite a while. In addition, COVID-19 resurgences and the government’s stringent lockdown curbs will risk another economic downturn in Q3. Daily local cases (including asymptomatic) surged to more than 2,300 from the hundreds in early August. But the authorities’ zero-tolerance approach will continue to restrict social mobility and interrupt business activities. As a result, broader policy changes, ranging from property to COVID-19 containment, are required to arrest China’s economic slowdown in H2 this year.”