Back
12 Mar 2015
China requires more rate cuts - Nomura
FXStreet (Bali) - According to Nomura Economists, China's disappointing data on Tuesday suggests weaker growth, thus the requirement for more rate cuts.
Key Quotes
"Industrial production growth fell sharply to 6.8% y-o-y in January- February (combined to remove lunar new year distortions) from 7.9% in December, substantially below market consensus of 7.7% and slightly below our expectation of 7.1%. Retail sales growth slowed significantly to 10.7% y-o-y in January-February from 11.9% in December, also below expectations (Consensus: 11.6%; Nomura: 11.8%)."
"Fixed asset investment growth also fell significantly, to 13.9% y-o-y ytd in February from 15.7% in December (Consensus: 15.0%; Nomura: 15.1%). Slower investment growth was led by the manufacturing and infrastructure sectors: manufacturing investment growth slowed by 2.9 percentage points (pp) to 10.6% y-o-y (ytd) in February from 13.5% in December, while infrastructure investment growth (excluding electricity) fell by 0.9pp to 20.6%, from 21.5%. Property investment growth edged 0.1pp lower to 10.4%."
"Overall, core activity data confirm weakening growth momentum despite stronger-thanexpected export growth, reinforcing our view that the current downtrend is a structural issue involving the correction of the property market and overcapacity in manufacturing sectors. We now see downside risk to our forecast of growth slowing to 7.1% y-o-y in Q1 from 7.3% in Q4 2014, and to 6.8% for the year of 2015."
"Policy forecast change: To offset the headwinds to economic growth, we now expect monetary policy to be loosened even further. We now forecast three 25bp benchmark rate cuts (to 1.75%) and three 50bp reserve requirement ratio cuts (to 18%), with cuts to each coming in each remaining quarter of the year.
Key Quotes
"Industrial production growth fell sharply to 6.8% y-o-y in January- February (combined to remove lunar new year distortions) from 7.9% in December, substantially below market consensus of 7.7% and slightly below our expectation of 7.1%. Retail sales growth slowed significantly to 10.7% y-o-y in January-February from 11.9% in December, also below expectations (Consensus: 11.6%; Nomura: 11.8%)."
"Fixed asset investment growth also fell significantly, to 13.9% y-o-y ytd in February from 15.7% in December (Consensus: 15.0%; Nomura: 15.1%). Slower investment growth was led by the manufacturing and infrastructure sectors: manufacturing investment growth slowed by 2.9 percentage points (pp) to 10.6% y-o-y (ytd) in February from 13.5% in December, while infrastructure investment growth (excluding electricity) fell by 0.9pp to 20.6%, from 21.5%. Property investment growth edged 0.1pp lower to 10.4%."
"Overall, core activity data confirm weakening growth momentum despite stronger-thanexpected export growth, reinforcing our view that the current downtrend is a structural issue involving the correction of the property market and overcapacity in manufacturing sectors. We now see downside risk to our forecast of growth slowing to 7.1% y-o-y in Q1 from 7.3% in Q4 2014, and to 6.8% for the year of 2015."
"Policy forecast change: To offset the headwinds to economic growth, we now expect monetary policy to be loosened even further. We now forecast three 25bp benchmark rate cuts (to 1.75%) and three 50bp reserve requirement ratio cuts (to 18%), with cuts to each coming in each remaining quarter of the year.