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China Money April 2022

China: Credit growth slumps in April; PBOC cuts rates

In April, Chinese banks distributed a mere CNY 0.6 trillion (roughly USD 100 billion) in new yuan loans, down from March’s 3.1 trillion figure and less than half the amount that markets had expected. Annual growth in M2 money supply rose from 9.7% in March to 10.5% in April, while 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—fell from 10.6% to 10.2%.

The soft credit data in April was linked to a collapse in loan demand due to Covid-19 restrictions, with consumer lending—including for mortgage loans—particularly depressed. In May, the Central Bank cut the minimum mortgage rate for first-time buyers by 20 basis points and the 5-year Loan Prime Rate by 15 basis points, after a series of cuts to other policy rates since late last year. This is likely to be followed by further easing measures in the months ahead as the PBOC looks to stabilize the property sector and broader economy. That said, the Bank’s room to cut rates will be limited by the need to protect the yuan, which is down over 6% since March. A desire to keep inflation under control and protect banks’ profit margins could also dissuade the PBOC from making large rate cuts.

On the monetary policy panorama, ING’s Iris Pang commented:

“Lockdowns have created problems for banks in China as they have become more risk-averse. China’s central bank has promised to help but it lacks a solution. We believe that asset management companies play a role in boosting overall credit. But there is no perfect solution when the uncertainty of long lockdowns is high.”

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