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China Money February 2023

China: Money supply grows at fastest pace since March 2016 in February

In February, Chinese banks distributed CNY 1810 billion in new yuan loans, down from January’s 4900 billion figure but overshooting market expectations. Meanwhile, 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—increased 10.2% in the month (January: 9.7% yoy). Money supply grew 12.8% in year-on-year terms in February, which followed January’s 12.6% increase; February’s figure marked the best reading since March 2016.

Loans to corporates and government bond issuance remained the key drivers of credit in February, while consumer loans were weak as households focused on prepaying mortgages. Meanwhile, the Central Bank kept its key policy rates unchanged over the last month.

Looking ahead, the Consensus is for double-digit money supply growth this year amid a rebound in credit demand. In addition, the PBOC is expected to keep its policy rates broadly stable, as the economy should continue to recover and price pressures are set to stay mild following lower-than-expected February inflation data.

On the monetary policy outlook, Nomura analysts said:

“The low CPI and PPI inflation readings could provide Beijing with more room for policy support. We view the space for the PBoC to cut benchmark MLF rates as still quite limited, as regulators need to protect bank profit margins. However, the? inflation downside surprise could slightly raise the probability of a moderate rate cut in the next couple of months.”

United Overseas Bank’s Ho Woei Chen said:

“The prospect of further rate cuts will diminish with the growth stabilisation. Having said that, there could still be targeted support to certain sectors. Yi Gang also said that the reductions in banks’ reserve requirement ratio (RRR) have improved long-term funding for the Chinese banks and thus a further cut to the ratio remains a possibility.”

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