China: Credit growth surges in March
In March, Chinese banks distributed CNY 3.1 trillion (roughly USD 480 billion) in new yuan loans, up from February’s 1.2 trillion figure. The pickup was partly driven by seasonal factors, as lending in February was affected by the Lunar New Year festivities and a front-loading of loans in January. Annual growth in M2 money supply rose from 9.2% in February to 9.7% in March, 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—rose from 10.2% to 10.6%. The figures overshot market expectations.
The acceleration in credit growth in March was likely linked to government efforts to shore up economic activity in the face of Covid-19 outbreaks at home. That said, consumer lending remained soft amid a weak property sector. In April, the Central Bank trimmed the reserve requirement ratio by 25 basis points, but kept its key policy rates unchanged. The easing measure was conservative given the scale of the domestic growth slowdown underway, and was likely driven by a desire to avoid stoking inflation or spurring further capital outflows—which have been significant since the war in Ukraine began.
On the monetary policy outlook, analysts at Nomura commented:
“We believe the PBoC may cut the RRR by another 25bp, likely before mid-2022, and we expect 10bp in rate cuts on major policy rates. After that, we expect no further rate cuts before end-2022, due to limited policy space with Beijing instead focusing on credit easing, especially on local government financing and the property sector, the two conventional growth drivers.”