The People’s Bank of China is expected to announce easing of policy rates after its forthcoming policy meet on account of slow growth momentum and persistent weak inflation. Also, China’s monetary data for the month of May signalled weakness, which is likely to spur a further rate cut.
The PBoC is expected to either cut the reserve requirement ratio by 50 basis points or ease policy rate by 25 basis points at its policy meeting this month, Commerzbank said in a report.
China’s monetary data remained soft in May; while new loans rebounded to CNY985.5 billion from CNY555.6 billion in April, aggregate financing slowed down further to CNY659.9 billion compared with CNY751.0 billion in April and CNY2400 billion in March. In the meantime, M2 growth decelerated sharply to 11.8 percent y/y in May, from 12.8 percent in the prior month.
Fiscal spending rose 17.6 percent y/y in May, jumping sharply from 4.6 percent in April, data compiled by the Ministry of Finance showed. However, at a single glance, the continued slowdown in aggregate financing reflects the tepid pace of economic activity, in particular in the private sector.
"We hold on to our view that Chinese GDP growth will decelerate to slower than 6.5 percent in the second half of this year," Commerzbank said in a research statement.
Further, slow growth in M2 money supply of the economy pose threats for the world’s second largest economy. M2 growth is running well below its 13 percent increase target for the full year, data showed, which will further, boost prospects of a near-term rate cut.
