Nomura Only Expect Limited Rate Cuts, High Chance Of A Move This Week

Nomura note that despite the headline Chinese credit readings for March, “after a detailed look at the data, the picture is much less pretty. The strength in new loans was mainly driven by new short-term corporate loans and bill financing which rose to CNY809bn and CNY319bn in March, a big jump from CNY375bn and -CNY153bn a year ago, respectively. Regulators and banks are likely to have increased their short-term lending to boost market confidence. New medium to long-term loans to corporates rose only modestly to CNY1,345bn in March from CNY1,330bn a year ago, while new medium to long-term loans to households (most of which are mortgage loans) dropped to CNY374bn in March from CNY624bn a year ago, suggesting weakening new home sales. Faster AF growth was to some extent driven by a big rise in net government financing to CNY705bn to CNY313bn, as Beijing frontloads bond issuance in H1.”

• “We expect only one 10bp rate cut to each of the one-year MLF, one-year and five-year LPR, and seven-day reverse repo rates before end-2022. The likelihood of the PBoC cutting these rates this week is reasonably high. The PBoC will also likely cut the RRR by 50bp in coming weeks. Furthermore, we expect it to increase its direct credit support to SMEs, the agricultural sector, green investment, tech and elderly care via the MLF, relending and re-discounting channels. However, unlike in 2015, we expect Beijing to be more reluctant to print money directly to support the property sector. We expect AF and loan growth in April to remain around their pace in March.”