Standard Chartered’s RGI fell 1% in March
(13 May 2015 – Asia) The Standard Chartered Renminbi Globalisation Index (RGI) fell 1 percent in March to 2117 from the previous month.
March proved to be a challenging month for the offshore RMB market, foreign exchange turnover, CNH deposits and dim sum bonds all detracted from the Index.
Standard Chartered mentioned the Dim Sum component recorded eight straight months of decline, mainly hurt by elevated funding costs, making it less attractive than raising USD-denominated debt.
“However, the primary market is showing initial signs of recovery as funding costs started to decline.”
Standard Chartered keeps its full-year Dim Sum and Formosa bonds gross issuance forecast at CNY480-500 billion (A$98-102 billion).
Offshore RMB deposits also struggled to grow, which Standard Chartered said was due to CNY weakness and the persistent CNH discount against CNY favouring RMB flowing back into China under the current account.
“But there are more positive dynamics in the making, namely the narrowing of CNH discount from February and March levels and the surge in southbound flows under the Shanghai-Hong Kong Stock Connect scheme since early April,” the bank said.
China’s first-quarter year-on-year GDP growth of 7 percent masks underlying weakness.
Downward growth momentum may linger in the second quarter, leading to more policy easing.
Standard Chartered lowered China’s economic growth forecasts for 2015 to 6.9 percent from 7.1 percent, reflecting a sluggish start to the year.
The 2016 GDP forecast was lowered to 6.8 percent from 7.0 percent, reflecting a prolonged housing-inventory adjustment.
Inflation forecast for 2015 was cut to 1.6 percent from 2.0 percent and 2016 to 2.1 percent from 2.5 percent.
Standard Chartered expected a four-pronged policy easing to reduce growth risks.
The 2015 budget suggested a nearly 1 percentage point increase in the deficit/GDP ratio, leaving room for more proactive fiscal policy.
Monetary policy may maintain an easing bias, Standard Chartered expects a 25 basis points rate cut by end-June, possibly accompanied by deposit rate liberalisation, followed by a total of 100 basis points of RRR cuts in the second half.
The government may loosen property policies further to bolster demand, especially in smaller cities.
The recent recapitalisation of policy banks would allow them, over time, to take on additional risk assets of US$700-800 billion (A$886-1013 billion), or 7-8 percent of 2014 GDP.
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