China is unlikely to further cut the deposit rate or lower the reserve requirement ratio (RRR) in the short term, Goldman Sachs said on Tuesday.
“We think the probability that they will cut the deposit rate or RRR is higher, but we don’t expect there is a big chance for it to happen in the short term,” said MK Tang, a senior China economist in the investment bank.
However, authorities may cut the RRR next year if foreign exchange inflows continue to slow down, he said.
The People’s Bank of China cut the one-year benchmark deposit rate to 2.75 percent from 3 percent last Friday in a bid to shore up flagging economic growth. The one-year benchmark lending rate was also cut by 40 basis points to 5.6 percent.
Tang expects GDP growth to decelerate to about 7 percent next year, the lowest since 1990, despite the favorable global environment.
The slowdown is being effectively engineered by policymakers in order to allow themselves a little more scope to pursue reform, especially in state-owned enterprises (SOEs) and the financial sector, he said.
The housing market is also undergoing adjustments, which will continue to weigh on property investment and the overall economy, he added.
Meanwhile, Tang sees a robust economic outlook for the United States, Europe and Japan amid improving private sector balance sheet and lower oil prices. Europe and Japan will also benefit from weaker exchange rates next year as a result of their asset-purchase programs, he said.
He said the Federal Reserve may raise interest rates in September next year, three months later than the current consensus view.
In Hong Kong, Tang sees the Hang Seng Index rising 10 percent to 26,500 and the H-share index up 14 percent to 12,300 by the end of 2015.
“We still think that China stocks will be the main driver of the Hang Seng Index,” said Kinger Lau, chief China strategist at Goldman Sachs. “The main reason is that we are more optimistic about mainland companies’ profit growth and see room for improvement on their valuation.”
The bank is also upbeat about the Chinese equity market, with top picks in the insurance, healthcare, technology and utilities sectors.
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