Don’t get too excited.
Despite a string of positive economic data for May released Thursday that showed a pick up in retail sales, industrial output, home sales, and credits, China’s central bank, the PBOC, is not about to abandon its rate-easing bias.
Economists at Bank of America Merrill Lynch maintained their view that the PBOC will likely cut its key rates by 25 bps more, and lower the reserve requirement on bank deposits by a further 150bps by the end of the year to spur the economy.
“The set of activity data show some modest improvement in the economy in May, in response to policy easing efforts,” BofA Merrill Lynch said in a note released this afternoon. But other data such as soft inflation and a drop in imports foretell an economy that still needs monetary and fiscal support.
“However, combine with the weaker-than-expected inflation data and unexpected deterioration in import growth, we would conclude that domestic demand remains on the weak side and clear signs of growth recovery are yet to seen,” the noted said. “As activity data remain soft and inflation is still low, we expect continued policy easing.”
An economist at JPMorgan, in a note released earlier today, said the PBOC is probably done cutting rates, according to Bloomberg:
“This round of rate-cut cycle is coming close to an end,” Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong, wrote in a report. “We expect the PBOC will shift the focus of monetary policy operation towards quantitative measures, especially using targeted quantitative measures to support certain sectors.”
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