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China Money July 2022

China: Credit data disappoints in July; Central Bank trims policy rates

In July, Chinese banks distributed CNY 0.7 trillion (roughly USD 100 billion) in new yuan loans, down from June’s 2.8 trillion figure and far below market expectations. Annual growth in M2 money supply rose from 11.4% in June to 12.0% in July. 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—dipped from 10.8% to 10.7%. July’s soft figures were likely driven by caution among businesses and consumers over taking out new loans, due to uncertainty over the Covid-19 situation and the property market.

Regarding monetary policy, the PBOC cut two key policy rates by 10 basis points each in August in a bid to spur activity. The move came after a rate cut in May. However, the measures are too small in scope to provide a meaningful boost to economic activity. Our panelists do not see much room for further rate cuts later this year, due to the rising interest rate differential with the U.S. and the need to protect banks’ profit margins.

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