Despite a healthy appetite for quantitative easing (QE) elsewhere in the world, the People's Bank of China is unlikely to go down the QE route, says AB.
In a recent Asian perspectives report titled China: Balancing act continues after NPC, AB argued that although the Chinese economy showed continued weakness throughout January and February, a QE policy remains unlikely.
Chinese premier Li Keqiang at the annual session of the National People’s Conference (NPC) – China’s national legislature body – provided insight into Beijing’s economic policy direction for 2015.
Mr Li stated that Beijing remains able to implement effective stimulus measures, which have not yet been used over the past two years, to stimulate growth if necessary.
“In our view, this implies the policymakers’ recognition of the need for some policy easing – both monetary and fiscal – to mitigate some of the growth headwinds,” said AB Asian sovereign strategist and author of the report Anthony Chan.
“As Premier Li mentioned, Beijing has numerous tools to directly adjust liquidity – cutting the RRR, lowering the 75 per cent loan-to-deposit ratio, or relaxing banks’ loan quota, just to name a few,” he said.
Mr Chan argued that China is unlikely to adopt a QE policy, as alternate measures will prove more effective than the QE policies already implemented by numerous developed economies.
“The premier acknowledged that the ongoing structural changes – eg. fiscal reform, local government debt restructuring, interest-rate liberalisation, state enterprise reforms, the retiring of excess capacity in various industries and stronger environmental controls – were generating a drag on near-term growth despite their longer-term benefits,” the report noted.
“[Mr Li] therefore emphasised the need to provide policy support to cushion the impact of the current economic slowdown.”
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