China Can't Cut Interest Rates, RRR Effect Limited, Temporary Rebound

It's a pessimistic forecast, but GDP will still grow 6.7 percent for the year, so there's that.

SCMP: Bounce in China’s economy may be short-term rebound, not long-term reversal: top think tank
Economists are concerned over the sustainability of recent growth. They say it has been driven by the old-fashioned way – through property investment and infrastructure construction – and that the increase of credit will add to an already heavy corporate debt load.

Xu said increasing the money supply and investing to stimulate growth could work in the short term but would have “big negative consequences”.

Zhang Xiaoqiang, executive vice-director with the think tank, said some big companies were putting the banks loans into their deposit accounts, indicating some was not flowing to the real economy but instead remaining idle in the banking system.

...He said cutting the reserve requirement was “imperative” and forecast the central bank would lower its reserve requirement at the end of April.
If borrowers are sticking their loans in the bank, cutting the RRR doesn't have a big impact on the economy. When the marginal return on credit is reached, the credit creation process breaks down until balance sheets are deleveraged.

Asked whether GDP might reach 7 per cent or more, Xu said: “The reality in resources, energy and the environment does not support a continuous upward trend. Therefore, the recent bounce is a short-term and mild rebound, but it is not a reversal.

...He expected GDP to rise 6.8 per cent in the second and third quarters of the year from 6.7 per cent growth in the first three months, and to slow to 6.7 per cent in the final quarter.
No worries.

“The policy to support growth cannot be [relaxed] otherwise [growth] will fall.

“There is basically no room to cut interest rates as we are facing negative interest rates. Further lowering interest rates may trigger capital outflows, so basically there is no space for a rate cut this year.”
Uh oh. When the Federal Reserve hikes interest rates it will have the same effect.

Bloomberg: Fed's Rosengren Says Market Is Too Pessimistic on Rate Path
Federal Reserve Bank of Boston President Eric Rosengren said he and many private-sector economists envision a “much healthier U.S. economy” than the forecast implied by financial markets, where investors expect the Fed to raise rates by about one-quarter percentage point a year over the next three years.

“The very shallow path of rate increases implied by financial futures-market pricing would likely result in an overheating that necessitates the Fed eventually raising interest rates more quickly than is desirable, which could endanger the ongoing recovery and continued growth,” Rosengren said, according to the text of a speech he is scheduled to deliver Monday in New Britain, Connecticut.
He's considered a dove.

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