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China looks primed to tighten again, even though new home prices fell sharply in March, according to Societe Generale’s Wei Yao.
Yao argues that three recent developments will drive the People’s Bank of China to raise the required reserve ratio at the country’s banks yet again.
- Strong deposit growth: Deposit growth has led to a small rise in lending, and a 16.6% rise, month-over-month, in broad money.
- Strong inflows: China FX reserves growing at fast rate, yuan appreciation expectations driving demand, inflows surging.
- Premier Wen’s comments: “Liquidity in China is still ample compared with normal levels and the government still faces pressure to sterilize funds” he said on April 13.
As a result, Yao predicts a hike in the country’s RRR.
All the while, it seems tightening measures may finally be catching up with China’s property market. Beijing new property prices were down 26.7% month-over-month, in March, with home purchases down dramatically too (via Zero Hedge).
More tightening measures could force even sharper declines in home prices, as loan availability declines.