Needs for more policy easing in China increasing

There are needs for more policy easing in China increasing given liquidity drain and downside risks to growth

"Looking ahead, the slowdown in growth, if continued, will add more pressure to the CNY depreciation. An increasing need for monetary easing with both interest rate and RRR cuts given the downside risks to growth and the CNY, as well as increasing risks of capital outflows and a tightening of domestic liquidity", says Barclays. 

The across-the-board weakness in the July data confirms the fragile growth stabilization, suggesting more fiscal support and monetary easing are warranted if the government still wants to achieve 7% growth in H2.

"Therefore, one benchmark rate cut of 25bp is expected in Q3, but now look for 100bp RRR cuts in H2 15 with risks for more. Fiscal policy is also expected to be more expansionary with increasing central government spending on key infrastructure investment, following the latest approval for the launch of CNY300bn policy bank bonds", added Barclays.