VIEW: J.P.Morgan: Diminishing Hope For RRR Cut And Rate Cut In Q421

J.P.Morgan note that "while TSF growth continued to decelerate in September, the PBoC's assessment remains unchanged as "current money supply and TSF growth is in line with nominal GDP growth". This is not consistent with our calculation. We expect TSF growth will start to bottom up from October and rise to 10.9% in December, but credit impulse (the gap between TSF growth and nominal GDP growth) will remain negative at around the current level for the rest of the year."

• "We had pencilled in a 50bp RRR cut in October. On Friday (October 15), the PBoC issued CNY500bn MLF to exactly offset the maturing MLF this month. When asked how the PBoC will respond with the maturing MLF in November and December, the PBoC said that it would adopt MLF and OMO to ensure stable liquidity, leaving out possible RRR cuts. Hence, we remove the RRR cut in our forecast in the current quarter, and expect the PBoC will fully extend MLF in the next two months."
• "The PBoC expects that the spike in global commodity prices and China's PPI will likely come off at year-end or early next year. CPI inflation will trend up but remain within reasonable range. The PBoC will continue to maintain normal monetary policy operations. In our interpretation, the "normal" wording indicates that the PBoC has no intension to cut policy rates, hence we remove our low-conviction forecast of 5bp policy rate cut in the current quarter."
• "The PBoC appears biased to use targeted instruments to support targeted sectors, especially green sectors and SMEs."