Tuesday, October 20, 2015

China: More easing measures to be deployed - BBVA

FXStreet (Bali) - Following the release of China Q3 GDP numbers on Monday, the BBVA Research Team anticipates more easing measures to be deployed in China in order to stimulate growth.

Key Quotes

"Despite the better-than-expected GDP outturn in the third quarter, a number of September activity indicators point to a slowing growth momentum. That being said, the authorities need to deploy more easing measure to spur growth and avoid a hard-landing scenario."

"On the monetary policy front, the prospective FED’s interest rate hike and China’s RMB devaluation may constrain the PBoC from trimming interest rate."

"Therefore, the PBoC is more likely to rely on quantitative tools such as the RRR cuts and a number of unconventional monetary tools (namely selective RRR cuts, short-and-medium term liquidity facility, the Central Bank refinancing to commercial banks, etc) to stimulate domestic demand. Therefore, we project three additional RRR cuts with 50 bps each time and one more 25 bps interest rate cut in the rest of the year."

"On the fiscal front, the thrust should be to avoid sharp fiscal consolidation at the local government level. The authorities are expected to further relax some tightening measures imposed on local government borrowing as well as to expand the central government’s fiscal deficit in the last quarter of the year."

"In addition to infrastructure investment, the authorities could consider more tax cuts for the corporate sector and increase public spending on social welfare."
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