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20 Jun 2013
Flash: Risks of systemic financial crisis in China have risen - Nomura
FXstreet.com (Barcelona) - The unresponsive stance by the PBoC refusing to intervene on China's interbank liquidity following the latest credit developments is a sign, according to Nomura Economists Zhiwei Zhang and Wendy Chenthat the the PBoC wants to signal its policy tightening and will tolerate individual defaults to contain wider financial risks.
In view of Zhang and Chenthat, "We believe that these developments reinforce our view that risks of a systemic financial crisis have risen, but that the government will take decisive action to tighten policy and contain such risks, even if the near-term cost is slower GDP growth." In terms of the policy stance to be adopted by the PBoC going forward, the Nomura Economists see a continuation of tightening practices as well as liquidity conditions will also remain tight in June.
"This will most likely lead to higher financing costs for corporate and local governments, and will bring GDP growth down further to 7.5% in Q2 and 7.3% in H2, with our forecast is at the bottom of the consensus forecast range" Zhang and Chenthat added.
In view of Zhang and Chenthat, "We believe that these developments reinforce our view that risks of a systemic financial crisis have risen, but that the government will take decisive action to tighten policy and contain such risks, even if the near-term cost is slower GDP growth." In terms of the policy stance to be adopted by the PBoC going forward, the Nomura Economists see a continuation of tightening practices as well as liquidity conditions will also remain tight in June.
"This will most likely lead to higher financing costs for corporate and local governments, and will bring GDP growth down further to 7.5% in Q2 and 7.3% in H2, with our forecast is at the bottom of the consensus forecast range" Zhang and Chenthat added.