China: Broad credit growth picks up in November
In November, Chinese banks distributed CNY 1090.0 billion in new yuan loans, up from October’s 738.4 billion figure but below market expectations. Money supply grew 10.0% in year-on-year terms in November, which was a deterioration from October’s 10.3% increase. November’s figure marked the worst reading since March 2022. Meanwhile, the stock of total social financing (TSF)—a broader measure of credit and liquidity in the economy that includes loans, bonds and other non-traditional instruments—increased 9.4% in the month (October: 9.3% yoy). Strong government bond issuance more than offset meek private-sector loan demand.
Regarding monetary policy, the Central Bank kept its key interest rates unchanged over the last month, but injected a record amount of cash into the banking system in mid-December in a bid to support economic activity.
Credit growth will continue to be supported in the near term by the extra CNY 1 trillion of government bond issuance announced in October. Regarding interest rates, our Consensus is for a modest reduction in rates by end-2024 as the authorities look to shore up a shaky economy. Room for more drastic rate cuts is limited by the need to protect the yuan and banks’ profit margins.
On the monetary policy outlook, Nomura analysts said:
“Faced with lower GDP growth, falling inflation and limited room for policy rate cuts, we think the PBoC is increasingly unlikely to use conventional monetary tools, such as rate and RRR cuts, to stimulate the economy. Instead, Beijing may have shifted its focus towards non-conventional monetary easing tools, including MLF, PSL and re-lending.”
In contrast, United Overseas Bank’s Ho Woei Chen sees room for rate cuts:
“We forecast the 1Y and 5Y loan prime rates (LPR) to fall by 10 bps to 3.35% and 4.10% respectively in 1Q24. Another 25 bps cut to banks’ reserve requirement ratio (RRR) may be delivered earlier to provide additional market liquidity.”