VIEW: Goldman Still Look For Further PBoC Easing In The Coming Months

In the wake of today’s MLF operations Goldman Sachs note that “reasons behind PBoC staying on hold (on interest rates) might include the following: 1) January to February activity growth was robust and beat market expectations, on the back of policy support; 2) ahead of the U.S. FOMC meeting in March and in light of increased global uncertainties and volatile markets, PBoC might want to stay put and closely monitor cross-border flows and exchange rate movements. We noticed that PBoC had been more actively guiding the exchange rate weaker - the countercyclical factor embedded in CNY fixing averaged +190 pips for the past two days, higher than the average of +21pips in the recent months. 3) Policymakers might want to prioritize COVID control in the very near-term to preserve policy room for future interest rate cuts once the Covid situation is under control and activities resume. 4) Despite policymakers' push for faster credit extension, January to February credit data continue to imply weak credit demand, as short-term bill financing/loans grew at a much faster pace than medium to long term loans. Stepping up fiscal expenditures (once COVID is under control) is probably more effective in terms of supporting overall activity growth.”

• “Despite the lack of cuts today, we continue to expect further policy easing including a 10bp policy interest rate cut and a 50bp RRR cut in the next few months. The resurgence of COVID in multiple provinces poses an additional drag on activity growth. Despite local property policy easing, property indicators, in particular new starts and land sales, deteriorated further. More policy easing would be required to achieve the challenging "around 5.5%" growth target this year.”