China will adjust monetary policy shortly - BBH

FXStreet (Guatemala) - Analysts at Brown Brothers Harriman explained that developments in the coming days will likely push the People's Bank of China into easing monetary policy the near-term.

Key Quotes:

“Many have been looking for a follow up move since the PBOC surprised the market on November 21 by cutting interest rates for the first time in two years”.

“Tomorrow HSBC will release its preliminary manufacturing PMI for December. It is expected to slip below the 50 boom/bust level for the first time since May”.

“It is not that the PBOC acts on the basis of the HSBC PMI measure. It has its own PMI. It is not to be released until December 31. It was just above 50 in November”.

“The recent string of economic data has shown a continued loss of momentum for the economy, illustrating the need while the easing of price pressures shows the PBOC has room to ease policy”.

“Technical factors provide a sense of urgency. Liquidity is drying up ahead of the end of the year”.

“It is being exacerbated by a rash of IPOS to be brought to market next week. In addition, the Medium-Term Lending Facility, through which the PBOC injected CNY 500 bln in September is set to expire this week”.

“The slowing of China's economy has both cyclical and structural characteristics”.

“Chinese officials appear to be embracing the structural decline. The annual China Central Economic Work Conference was held last week. This conference set the broad economic objectives, within the five-year plan, including GDP”.

“An announcement of the results is not expected until next year, but the press has been speculating that the 2015 growth target will fall to 7.0% from 7.5%”.