VIEW: J.P.Morgan Tweak Call On PBoC Path

After Friday’s RRR cut J.P.Morgan maintain their “view that monetary easing will continue, but the room for further easing is limited. Going forward, we now expect: (i) a 10bp rate cut in Q2 (likely in May). To mitigate the hit on banks’ interest margin, banks are encouraged to lower the upper ceiling of the deposit rate accordingly (with no change in the benchmark deposit rate); (ii) another 25bp RRR cut in Q3 (likely in July); and (iii) re-lending facilities and other targeted instruments to support targeted areas.”

• “The recent Omicron wave and escalation of the zero-COVID policy have led to significant disruption of economic activity in the near term, which will be reflected in a notable slowdown in the current quarter and make the 5.5% annual growth target very difficult to achieve. We believe the PBOC has room for more aggressive rate cuts and additional RRR cuts. CPI inflation rose to 1.5% in March, and is likely to rise further to about 2.5% in H2, but the full-year average CPI (JPM forecast: 1.9%) will be significantly below the 3% target. Hence, more aggressive rate cuts (than our baseline assumption) can be adopted to address the intensified pressure on the economy amid increasing external (increases in global commodity prices and downward revision of global economic growth) and internal (Omicron drag) uncertainties. In practice, the relatively cautious attitude and operations of the PBOC will not be sufficient to drive a solid economic rebound as required by the 5.5% growth target. It is possible that China will have to lower its annual growth target (either explicitly or tolerate significantly lower growth than 5.5%) for the first time since the government started to announce its annual growth target in the late 1990s.”