China: NPC signals more flexibility in policies – UOB
UOB Group’s Head of Research Suan Teck Kin, CFA; Economist Ho Woei Chen, CFA and Senior Strategist Peter Chia reviewed the 13th National People’s Congress (NPC) event.
Key Quotes
“As widely speculated, China did not set a numeric economic growth target for 2020, citing the need for policy flexibility amidst the great uncertainties in the global pandemic situation as well as the economic and trade environment. This is the first time that China did not set an annual growth target.”
“However, other economic targets including the urban employment creation, higher local government special bonds issuance quota, increase in tax and fees cuts as well as financial support suggest a reasonable economic recovery in 2H20. While it is not explicit, we think the GDP growth target is 1-4% for 2020 following the hint from NDRC. We maintain our 2020 GDP forecast for China at 1.8%.”
“China will pursue a prudent monetary policy in a more flexible and appropriate way. Overall, interest rate is expected to trend down further while the CNY exchange rate is expected to remain reasonably stable. We maintain our forecast for the 1Y LPR to be cut by a further 30 bps for the rest of the year. We also see room for another one to two rounds of RRR cut in the next 3-6 months.”
“We continue to see further near term weakness in the CNY towards 7.20 /USD by end-2Q20 before a gradual recovery to 7.10 /USD by end-4Q20.”