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Goldman Sachs note that “in the meeting with IMF Managing Director Kristalina Georgieva on Friday, Premier Li hinted at a potential RRR cut in the near term to support the real economy. Premier Li’s comment came amid sluggish activity growth - the economy struggled with downward pressures from property slowdown, the lingering drag from “dual controls” policy and power shortage, and multiple waves of local outbreaks of Covid-19.”
- They “think PM Li’s comment implies a targeted RRR cut is very likely in the near term. Based on previous experiences, after Premier Li’s comment, PBOC usually announces the actual cut within a week. The net liquidity impact may depend on whether the central bank rolls MLF in full on December 15th when CNY950bn loans will mature.”
- “Despite PBOC Sun’s implicit comment on no RRR cut in mid-October, the recent weak activity growth and increased stresses in the labour market likely still concerned policymakers and in particular the State Council. Property indicators such as land sales continued to deteriorate, and despite PBOC’s guidance on accelerating credit extensions, TSF data surprised to the downside in the recent months. The strict restrictive measures against Covid-19 also dragged down consumption activities and export growth might have also moderated in November.”
- They have seen “a series of policy easing measures in recent weeks, and high frequency indicators suggest incremental improvement in construction activities. Partially also due to the high base in Q4 2020,” but they still “expect a deceleration of real GDP year-over-year growth to 3.1% in Q4. The upcoming Politburo meeting and Central Economic Work Conference may shed more light on the policy outlook next year. Policymakers may send incremental easing signals while stating a stable overall macro policy next year.”