China Changes Monetary Policy to Stabilize Currency

Xinhua put out an official document stating monetary policy will be appropriately accommodative, but compared to last year, it will be focused more on stability, more prudent with regard to interest rate and RRR cuts, using tools such as the MLF to support growth.

Various analysts expected a shift to neutral policy in the wake of first-tier housing market speculation:

UBS released a report that the recent real estate activity and market sentiment both because of the policies and the release of pent-up demand in the early part of the credit easing stimulus, but also by the local financing and credit expansion driven by strong growth, but the latter is unlikely to be sustained.

Deutsche Bank (hereinafter referred to as Deutsche Bank) believe that China's monetary policy and fiscal policy from the previous year or in the relatively relaxed adjusted to neutral. After the economy to show positive signals, China will be more focus on financial stability, the current slowdown in credit growth in the second half or in order to prevent long-term macroeconomic risks.

UBS also noted that the policy easing momentum in the short term China may have peaked, further easing efforts coded space is quite limited. Real estate, given the first- and some second-tier cities prices have soared, real estate sales have rebounded strongly, re-introduction of a low probability of further easing in the short term real estate. In fact, Shanghai, Shenzhen and Nanjing cities and other local real estate has tightened policy.

Deutsche Bank also predicted that from now until the end of the year or only once China cut interest rates, the time may be scheduled in the fourth quarter. Or at the end of each quarter, each associate to arrange a drop. The UBS economists believe that, given the recent CPI accelerated rise (although primarily driven by the price of pork and vegetables), the central bank will not cut interest rates during the year.

More than a few agencies that one of the main driving force of this economy and the real estate activity improved decision-making is a significant expansion of the leading credit. Although credit expansion can support the short-term economic growth and the real estate market, but will aggravate the debt and medium-term macro risk. According to UBS estimates, after the financial crisis, China's non-financial sector debt as a share of GDP has increased by 100 percentage points to 260%, of which the corporate sector debt-GDP ratio exceeds 150%. This year is expected to overall credit growth of 16.5%, while nominal GDP growth rate of only 6-7%, which means that the debt-GDP ratio will be increased by 20 percentage points.

Vigilant monetary policy stance to neutral bring liquidity squeeze

CICC also believes that, as the economy re- inflation trend further clarity, the monetary policy stance may gradually shift neutral, the marginal rate of monetary expansion is likely to slow. But gold stressed that this year the main risks still concerned about inflationary pressures, including real estate prices and related products, as well as to neutral monetary policy stance may bring short-term local and liquidity squeeze. While continue down real interest rates expected to support real economic recovery, reduce systemic risk at the macro level, but prudent macroeconomic management may be some of the current leverage ratio is too high, we had to hold in order to concentrate financial products to bring local and short-term liquidity tension.

iFeng: 官媒、中外投行：中国货币政策即将转向
Xinhua: 周小川：将灵活适度实施稳健的货币政策

Related: China Property Boost to GDP May Wane After Debt-Fueled Rise

China’s expansion may face stronger headwinds this year should the debt-fueled boost from real estate, a key driver of recent economic growth, prove unsustainable.

The economy grew 1.1 percent in the first quarter from the prior quarter, the slowest quarter-to-quarter expansion in data since 2011, the National Bureau of Statistics said Saturday. Housing demand helped boost growth, with output of real-estate services adding 9.1 percent from a year earlier while construction activities rose 7.8 percent, NBS said.