Latest data shows time has come for rate cuts in China, says ANZ

May 13, 2014

HONG KONG – Data released by China today shows that industrial production rose 8.7% y/y in April, down slightly from 8.8% in March and lower than the  market consensus of 8.9%. Electricity production growth slowed further to 4.4% y/y, down from 6.2% in the prior month, while fixed asset investment moderated to 17.3% y/y in January-April, the lowest level since 2002, compared with 17.6% for Q1 2013.

Retail sales growth also came in weaker than expected, up 11.9% y/y in April, the lowest level in three years, compared with 12.2% in March. ANZ Bank says today’s real activity data, plus the trade figures released last week, suggest that China’s economy has yet to stabilise. “In the meantime, the monetary data also points to risk aversion sentiment as banks are de-leveraging, and their off-balance-sheet activities have cooled down significantly.
“If this trend were to be extended to May and June, China’s Q2 growth could remain below 7.5% after 7.4% in Q1. Therefore, if the Government still views achievement of a 7.5% growth target as important for its credibility, China’s monetary policy will have to play its necessary role by easing further in order to help pull the economy out of lethargy,” ANZ says.
“As there is little evidence that lowered money market rates have been translated into lowered lending rates, it is time for the PBoC to revert to its traditional monetary policy tool by cutting reserve requirement ratio as well as lowering prime lending rates.”  www.live.anz.com (ATI).