FXStreet (Guatemala) – Analysts at Nomura noted that the People’s Bank of China (PBoC) has released its Q2 monetary policy report. The highlights are as follows:
Key Quotes:
“The report pointed out that the major economic indicators were improving in Q2 (helped by infrastructure investment), but there is still much downward pressure owing to structural problems. This is in line with our assessment that growth momentum is improving, but is still fragile and progressing slowly (see China: Nomura indicators show improving growth momentum, 30 July 2015). We expect the real economy to improve further in H2, but the financial sector’s contribution to GDP growth may fall as equity market sentiment weakens owing to the recent equity market selloffs. On balance, we forecast 6.9% y-o-y growth for H2, slightly lower than the 7.0% y-o-y growth in H1.”
“There was little change in wording on the monetary policy outlook – the report reiterated a “prudent” monetary policy stance with an emphasis on appropriate tightening or loosening. This indicates to us that the loose-bias policy stance will not change in H2.”
“There is a box titled “Several issues of the transmission mechanism of monetary policy”, emphasizing the need for structural reforms in the financial market and the economy to improve the effectiveness of monetary policy. This remark suggests the PBoC may reduce the magnitude of monetary easing and push forward financial reform. We continue to expect another 50bp RRR cut and a 25bp benchmark rate cut for the rest of the year. Now that the equity market has stabilised as a result of the rescue measures and the real economy has shown signs of sequential improvement, the pace of monetary easing may be slower than previously, with the next move likely to be an RRR cut in August.”
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