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PBOC: VIEW: In the wake of June's money supply data ING noted that "undiscounted
bills grew aggressively, this implies tight liquidity conditions at the end of
the half-year. This is because the People's Bank of China has not flooded the
market with liquidity. It only cut interest rates for loans targeted at SMEs and
the agricultural sector. The PBoC does not want to create more liquidity to fuel
the asset markets, including the real estate market and stock markets. We expect
the PBoC will continue to control liquidity, leaning towards a tighter stance
rather than an easier one, if asset prices continue to rise rapidly. As such, we
believe that the PBoC may not ease further unless there is severe damage to the
economy either from foreign demand or inefficient stimulus. Foreign demand could
continue to be dismal due to a faster increase in Covid-19 cases in the US.
Domestically, we had worried about slow infrastructure growth but today's credit
data implies that growth in infrastructure projects should pick up soon. As
such, our conclusion on monetary policy is that there is a high chance that the
PBoC will put broad-based liquidity easing and interest rate cuts on hold, and
focus more on helping lending to SMEs and agricultural activities."