DeepDive: Signals From the Central Bank

In this DeepDive, we analyse the PBoC’s latest policy communication and macro outlook. Our text-based indicators still point to more stable macro conditions, supporting our cautiously optimistic view from mid-February. While our indicators continue to suggest an accommodative stance and more policy support ahead, the more hawkish policy communication relative to last year implies that additional stimulus or rate cuts will be limited. Our DeepDive has more.

Our text-based PBoC macro indicator (MaCI) remains below its long-term average when applied to the central bank’s latest outlook and policy communication, pointing to relatively stable macro conditions in China. This is further supported by our countercheck indicator, which has fallen sharply from elevated levels in 2022 and 2023 and is now approaching its long-term average. The current readings further reinforce our cautiously optimistic outlook from mid-February this year, though structural issues remain.

The MaCI and the countercheck indicator typically move in lockstep, with the countercheck indicator trailing the MaCI by about one quarter. The substantial divergence between the two indicators in 2022 and 2023, which exceeded two standard deviations, led us to question the macroeconomic outlook last year. The indicators began to converge again earlier this year, signalling improving macro conditions (also see QuickScan: The PBoC’s Optimistic Outlook for details on the relation between the MaCI and the countercheck indicator and New Set of Text-Based Macro Indicators for a comprehensive introduction of our suite of text-based indicators).