From Morgan Stanley:
Impact of monetarytightening on growth to be manageable: Although the CBRC’s move will not affect domestic liquidity conditions directly, ithas affirmed policymakers’ continued monetary and regulatory tightening stance, which could lead to a continued decline in credit impulse in China. We expect growth will soften in 2H amid credit tightening and a higher base, but a slump looks unlikely. Therefore, we maintain our forecast of a modest slowdown in YoY GDP growth to 6.5% in 2H vs. 6.9% in 1Q,and a slip in MS-CHEX (Morgan Stanley China Economic Index) to 4- 5% YoY in 2H vs. 6-7% YoY over the past few quarters (Exhibit 16).
First, a manageable, calibrated tightening continued to be our base case,as evident from the improved coordination among policymakers and stabilized interbank rates on calculated liquidity management over the past two months (Exhibit 11). This can help prevent triggering a liquidity crunch/hard landing.
