China: Significant new policy easing and stimulus measures – Nomura

In the past two days, we have seen strong indications that Beijing could be shifting from mere policy easing measures to a new round of stimulus to avert a credit squeeze and economic growth slowdown, according to analysts at Nomura.

Key Quotes

“These signs include a sharp drop in the Treasury deposit rate, Mr. Guo Shuqing’s (the chairman of the newly founded China Banking and Insurance Regulatory Commission) call to increase credit supply and significantly cut financing costs of small- and micro-sized enterprises, and a possible new window guidance from PBoC on using the medium-term lending facility (MLF) to encourage banks to increase loan supply and buy high-yield bonds.”

“With the worse-than-expected domestic slowdown and potential fallout from trade tensions with the US, we believe Beijing has little choice but to pause on its deleveraging campaign and could, albeit reluctantly, start a new round of stimulus.”

“However, some of these measures could lead to even bigger problems in the medium- to long-term, although in the short term they might be able to stabilise both financial markets and economic growth.”

“We expect more easing and stimulus measures, especially more pro-active fiscal policies, in H2 to mitigate strong headwinds on growth.”