Back
23 Feb 2016
China: More than one way to ease – HSBC
Research Team at HSBC, notes that the January HSBC China Monetary Conditions Indicator (MCI) indicated that monetary conditions loosened further at the start of 2016.
Key Quotes
“Changes in all of the three sub-components of the indicator – real money supply, real interest rate and real effective exchange rate (REER) – contributed to the improvement in January. The largest contribution came from the real effective exchange rate.
The continued loosening of monetary conditions, on the back of relatively flush liquidity conditions, more flexible exchange rate and evidenced by strong bank lending in January, should help to support growth in coming months. It also underscored the increasing subtleties of monetary easing. Even as the central bank appears reluctant to ease in a broad-based manner, it has so far been effective in easing monetary conditions with a variety of different tools.
Meanwhile, although the latest MCI reading spells positive news, it will need to be sustained in order to facilitate fiscal expansion in 2016. Latest data including trade data and manufacturing PMI continue to point to both challenging external demand outlook and sluggish domestic demand. Against this backdrop, we expect to see more policy easing being announced in the upcoming National People’s Congress (NPC) session.”
Key Quotes
“Changes in all of the three sub-components of the indicator – real money supply, real interest rate and real effective exchange rate (REER) – contributed to the improvement in January. The largest contribution came from the real effective exchange rate.
The continued loosening of monetary conditions, on the back of relatively flush liquidity conditions, more flexible exchange rate and evidenced by strong bank lending in January, should help to support growth in coming months. It also underscored the increasing subtleties of monetary easing. Even as the central bank appears reluctant to ease in a broad-based manner, it has so far been effective in easing monetary conditions with a variety of different tools.
Meanwhile, although the latest MCI reading spells positive news, it will need to be sustained in order to facilitate fiscal expansion in 2016. Latest data including trade data and manufacturing PMI continue to point to both challenging external demand outlook and sluggish domestic demand. Against this backdrop, we expect to see more policy easing being announced in the upcoming National People’s Congress (NPC) session.”