PBoC likely to be prudent in order to control macro leverage, likelihood of RRR cut before June diminishes: ANZ Research

The People’s Bank of China (PBoC) is expected to remain more prudent in order to control macro leverage going forward, thus diminishing the likelihood of a cut in the required reserve rate (RRR) for all commercial banks before June, according to the latest report from ANZ Research.

China’s top decision-making body, the Central Politburo of the Communist Party, released a statement April 19 outlining the country’s economic situation. The statement confirms that growth in the first quarter of the year has been better than expected. It also deems structural factors to be contributing to ongoing downward pressures.

The increase in China’s macro leverage indicates that growth is still on a debt-driven path. In Q1 2019, total social financing and M2 money supply growth rebounded to 10.7 percent y/y and 8.6 percent y/y respectively, even as nominal GDP growth slowed to 7.8 percent y/y, the report added.

This mismatch will increase financial risks further as China’s total debt-to-GDP ratio is as high as 249 percent at the present time. Property investment rebounded to 11.8 percent y/y while manufacturing investment was still sluggish during Q1.

Meanwhile, 65 out of 70 cities monitored by the National Bureau of Statistics recorded a rise in property prices in March. This is not a favourable way towards a sustainable recovery, according to Primer Li Keqiang’s report on the National People’s Congress this year.

"We expect Chinese policymakers to continue to support the economy through proactive policies," ANZ Research further commented in the report.