China: Credit data beats expectations in June
In May, Chinese banks distributed CNY 2.8 trillion (roughly USD 415 billion) in new yuan loans, up from May’s 1.9 trillion figure and beating market expectations. Annual growth in M2 money supply rose from 11.1% in May to 11.4% in June. Meanwhile, annual growth in 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—rose from 10.5% to 10.8%.
June’s figures came on the back of the easing of Covid-19 restrictions, which likely supported loan demand among households. Moreover, past monetary easing measures and the government’s infrastructure push played a role. Regarding monetary policy, policy rates have been on hold since the PBOC cut the 5-year Loan Prime Rate in mid-May.
Going forward, our Consensus is for some marginal additional monetary easing by year-end. However, our panelists have revised up their policy rate forecasts from last month, likely on the back of a hawkish Fed and a rebound in economic activity in June reducing the space and need for more rate cuts.
On the near-term outlook for credit growth, analysts at Nomura said:
“We expect growth in outstanding AF [total social financing] to remain largely stable at its current level in H2. We expect credit demand, especially from the private sector, to remain subdued amid rising risks of a new Omicron wave […], a likely continued deep contraction in the property sector and an inevitable export slowdown. Against this backdrop, Beijing will likely continue to use a variety of tools and channels to fill the vast funding gap and boost public investment.”
On interest rates, Ho Woei Chen, economist at United Overseas Bank, commented:
“There is less likelihood of more aggressive interest rate cuts as the economy stabilizes and global central banks continue to hike interest rates aggressively. We maintain our forecast for the 1Y LPR to move lower to 3.55% by end-3Q22 from current 3.70% with a modest 5 bps decline per month from July.”