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China Money June 2023

China: Credit growth slows in June; further monetary easing likely

In June, Chinese banks distributed CNY 3,051 billion in new yuan loans, up from May’s 1,360 billion figure and above market expectations. The stock of total social financing (TSF)—a broader measure of credit and liquidity in the economy—expanded 9.0% in the month (May: 9.5% yoy), and money supply growth slowed to 11.3% year on year (May: +11.6% yoy). On the monetary policy front, the Central Bank cut key policy rates by 10 basis points in June to support the economy.

Looking ahead, most of our analysts see further cuts to key policy rates before the end of the year. Moreover, the Central Bank may also trim the reserve requirement ratio—which was already cut in March. Further monetary stimulus appears particularly likely in the wake of June’s consumer and producer inflation readings, which both undershot market expectations.

On future monetary policy moves, Nomura analysts said:

“The ultra-low inflation reading lends supports to our view that the PBoC is likely to implement two more rounds of policy rate cuts of 10bp each, and another 25bp cut to the RRR over the rest of the year.”

In contrast, United Overseas Bank’s Ho Woei Chen sees less stimulus ahead:

“We maintain […] our call for another cut to banks’ reserve requirement ratio (RRR) in 2H23 but do not expect further reduction in the benchmark rates this year.”

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