FXStreet (Delhi) – Research Team at Nomura, notes that the Chinese credit expanded significantly in December.
Key Quotes
“Aggregate financing surged to RMB1.82trn from RMB1.02trn in November, much stronger than expected (Consensus and Nomura: RMB1.15trn), with the growth of outstanding stock rising to 12.4% y-o-y from 12.1%.
The credit expansion points to a possible pickup in fixed asset investment, which supports our forecast for fixed asset investment growth to pick up to 10.3% y-o-y (ytd) in December from 10.2% in November. We think fixed asset investment is being driven by infrastructure projects, with the effect of fiscal stimulus starting to kick in. As evidence of the increase in fiscal stimulus, the RMB1.5trn decline in fiscal deposits in December represented a 14.5% increase over December 2014.
Overall, the December credit data were consistent with trade data and leading indicators, suggesting the economy may have stabilised at a low level. However, we think this stabilisation will be only temporary, as headwinds remain strong on structural problems like overcapacity and oversupply in the real estate market. We continue to expect the growth to slow gradually in 2016 and forecast annual growth of 5.8%.
On the policy front, we maintain our forecast of four reserve requirement ratio (RRR) cuts (50bp cut each quarter) and two benchmark interest rate cuts (25bp cut in Q2 and Q3) this year. We believe the possibility of an RRR cut in January remains high, as the monetary base in December fell by 6.0% y-o-y; this requires the PBoC to increase money multiplier by cutting the RRR to maintain stable M2 growth.”
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