China:
In April, Chinese banks distributed CNY 730 billion in new yuan loans, down from March’s 3090 billion figure and close to half of market expectations. Money supply increased 7.2% year on year in April (March: +8.3% yoy). The result marked the worst reading on record and was also below market expectations.
Meanwhile, total social financing (TSF)—a broader measure of credit and liquidity in the economy—rose 8.3% in the month (March: 8.7% yoy), with the flow of TSF in April falling to a record low. Weak government bond issuance and private-sector credit demand weighed on TSF in April.
Regarding monetary policy, the Central Bank left interest rates unchanged over the last month.
Our Consensus is for interest rates to be trimmed later in the year in order to support the economy, while money supply growth is forecast to slow this year from last.
On housing credit, EIU analysts said:
“As potential home buyers maintain a wait-and-see attitude, medium- and long-term loans to households (which primarily consist of mortgages) fell by Rmb166.7bn in April, mirroring the continued nationwide decline in new home and existing home sales. As we had previously argued, the government’s measures to support the property market via the destocking of newly-built homes and the removal of local purchase restrictions in a growing number of large cities are unlikely to revive the market.”
Regarding monetary policy, United Overseas Bank’s Ho Woei Chen said:
“For now, we still see room for conventional monetary policy in China. The beginning of Fed’s rate cut which we expect to be in Sep 2024 would create the space for further monetary policy easing by the PBOC. As such, we expect the 1Y loan prime rate (LPR) to fall to 3.20% by end-4Q24 (current 3.45%) while the 5Y LPR may stay on hold at 3.95% through the rest of 2024 after the 25 bps reduction in Feb. We also think there is a possibility of another 50 bps cut to the RRR.”