J.P. Morgan Sees No More Monetary Policy Easing In 2024

J.P. Morgan updated viewpoints on the China monetary and fiscal policy outlook post Friday's aggregate credit/new loans data. The US bank doesn't expect any more monetary policy easing this year, see below for more details.

• "The PBOC cut policy rates (10bp for 7-day reverse repo rate and 15bp for 1-year MLF rate) in August and cut RRR (by 25bp) in September, an important element in the latest round of incremental policy easing.
  
  However, we expect the PBOC to keep policy rates and RRR unchanged for the rest of the year, and maintain our TSF growth forecast at 9.5% at year-end (mainly due to low base last year). Like many other EM central banks, monetary easing is currently constrained by the latest developments in global financial market, i.e. increase in UST yields, strong USD and capital outflow pressure for low-interest rate economies. While the PBOC has mainly relied on macro-prudential measures to manage currency expectations and capital outflow pressure, the room for further rate cut is constrained in the near term.
  
  Hence, fiscal policy tends to play a bigger role in continuous growth-stabilization efforts. While local governments are generally facing fiscal difficulties (along with LGFV stress), the fiscal space can come from un-utilized quota for special local government bonds (520 billion out of this year’s 3.8 trillion full-year quota, and possibly utilizing the remaining 2.6 trillion debt room vs. local government debt ceiling) and central government (as central government debt only accounts for about 20% of GDP). The key question here is when and how. It is likely that the government may raise the budgetary fiscal deficit (more likely next year rather than this year in our view), and the fiscal support may involve infrastructure investment, consumption support, housing market stabilization, stock market stabilization or local government hidden debt resolution, etc. In the absence of a significant stimulus, the big challenge for the government is how to allocate limited resources into these important areas."