Sell-Side Analysts Expect Further China Easing

Updated sell-side views below, with analysts expecting further easing/policy support to aid growth before year end.

Goldman Sachs: "Following the PBOC's surprise policy rate cuts today, we expect 1-year and 5-year LPRs to be lowered by 15bps on 21 August, and now believe there could be further monetary easing through the remainder of this year, including two RRR cuts (25bps in September and another 25bps in Q4) and another 10bps policy rate cut (in Q4). Relative to our earlier forecasts, which envisaged one RRR cut in Q3 and one policy rate cut in Q4, this implies one additional 25bps RRR cut and one additional 10bps policy rate cut in H2. Further demand-side stimulus (e.g., additional LGSB quota, faster fiscal expenditure, more housing easing in large cities) will be needed as well to more effectively boost growth and confidence."

J.P. Morgan: "We also expect other pro-growth measures will be introduced soon, following the guideline from the Politburo meeting. On the monetary policy front, we expect a 25bp RRR cut in the current quarter, providing liquidity support for the economy and also supporting the issuance of special local government bonds in August-September. The PBOC will continue to expand structural monetary policy instruments to support targeted sectors. On the fiscal side, our baseline assumption expects quasi-fiscal support via policy banks (750 billion yuan this year), it is also likely that the central government may allow provincial governments to use the remaining room from the local government debt ceiling to mitigate local government debt pressure in the near term amid the sluggish land market. In the housing market, we expect housing policy easing measures will be announced in the coming weeks, e.g., lower downpayment requirements, relaxation in first home mortgage definition and relaxation in home purchase restrictions. The more difficult task is restoring confidence among private entrepreneurs and from homebuyers and consumers to support the recovery in private investment and household consumption."

Nomura: "While the rate cuts are broadly in line with our forecast of 20bp in rate cuts for H2, the timing was a surprise. The rate cuts suggest Beijing has been increasingly concerned about the growth slowdown, the crashing property sector, rising defaults, some faltering financial institutions, and the chain reaction. However, cutting benchmark rates alone might deliver limited help. In our view, to effectively stem the downward spiral, Beijing should play the role of lender of last resort to support some major developers and financial institutions in trouble, and should play the role of spender of last resort to boost aggregate demand. Lifting restrictions on the property sector is also highly desirable for boosting market confidence. We expect another 15bp cut in the 1-year MLF rate and a 20bp 7-day OMO rate cut before end-2023."