PBoC on a tightening path? - Nomura

Analysts at Nomura explained that the Governor of the People’s Bank of China (PBoC), Mr. Zhou Xiaochuan, expressed his views on the PBoC’s monetary policy stance at the BOAO Forum over the weekend and provided the audience with the following instructive points. 

Key Quotes:

"He said that “We should focus on structural reforms and long-term strategy, and cannot rely on monetary policy too much at this stage.”"

"In particular, Governor Zhou acknowledged that in general asset bubbles and inflation could be a side effect of monetary easing through stimulating the economy, and emphasised that “we’d better not get into the predicament of helicopter money.” This compares with his remarks that encouraged China’s household sector to leverage up one year ago."

"Admitting to the complexities of exiting the monetary easing cycle, Governor Zhou stressed that “liquidity tightening for many central banks should be a gradual process.”We view this as a subtle shift in monetary policy to a tightening bias, albeit the PBoC’s prudential and neutral monetary policy stance remains unchanged."

"We think tightening maybe marginal and cautious as the PBoC needs to assess its impact on growth and balance growth and financial risks. In our view, the tightening bias of monetary policy will be reflected in stricter credit extension to the property market, higher OMO interest rates and slower M2 growth. The following are three key takeaways from our reading on Governor Zhou’s remarks at BOAO Forum."