ANZ: Rethinking The Macro Leverage Ratio

ANZ "believe Chinese policymakers will aim to stabilise the macro leverage ratio (i.e. debt-to-GDP ratio) this year and start to taper monetary stimulus. Asset price inflation is believed to be the main culprit behind China's credit growth in recent years. The authorities will likely target the positive feedback loop and focus on controlling collateralisation. As such, we expect the People's Bank of China to monitor the asset markets and maintain an upward bias on lending rates this year. The goal of monetary policy will shift to the regulation of financial bubbles rather than to support growth. They also have the option of draining market liquidity to send out signals to the financial markets when 'speculative' activities intensify. We believe these measures may not be sufficient to contain the hikes in property prices. In our view, new policies targeted at properties near prestigious schools might be as important as monetary policy measures to stabilise China's macro leverage ratio."