J.P.Morgan Weigh In On Policy Dynamics After March’s Credit Data

J.P.Morgan note that “March TSF growth picked up notably with the credit impulse (gap between TSF growth and nominal GDP growth) improving further.”

• “The notable uptick in March TSF flow appeared broad-based as a growth-supportive policy kicked in. Various credit components picked up in March, including: (1) a moderate pickup in household (mortgage) loans amid steady easing in housing policy (though industry data suggests continuous weakness in property sales); (2) solid growth in medium to long term loans to the corporate sector, highlighting credit support for corporate sector financing and investment; (3) ongoing steady growth in corporate bond issuance; (4) a notable uptick in government bond issuance, amid front-loading of fiscal support for infra-FAI; and (5) stabilization in shadow bank credit.”
• “For the macro picture, the latest Omicron wave continues to be the prominent near-term concern for the economy, and the State Council has reiterated that pro-growth measures as laid out in the NPC meeting should be accelerated, with targeted credit support for rural area development and SMEs, as well as credit support to boost consumption and investment.”
• “On the policy rate front, our current baseline scenario assumes a 10bp rate cut this week. Meanwhile, regarding the risk bias, in the face of stronger-than-expected March credit data, and amid concerns of acceleration in capital outflow with a narrowing differential between China and U.S. rates, we believe the risk of a smaller rate cut (say, of 5bp or even no move) is higher than a more aggressive rate cut (larger than 10bp) at the moment.”