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China Money December 2022

China: Money supply records slowest growth since June in December

In December, Chinese banks distributed CNY 1400 billion in new yuan loans, up from Novembers 1210 billion figure. Stronger corporate loans provided support, while household loans were depressed. Money supply rose 11.8% in year-on-year terms in December, which was a deterioration from November’s 12.4% increase. 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 9.6% in the month (November: 10.0% yoy), marking a record low. The disappointing credit data was the result of the exit wave of Covid-19 cases hampering economic activity in December.

Regarding monetary policy, the Central Bank (PBOC) trimmed the reserve requirement ratio by 25 basis points in December, but left its key policy rates unchanged. Looking ahead, some of our analysts see slight reductions in policy rates this year to stimulate activity.

United Overseas Banks Ho Woei Chen is among the analysts who see easing:

“We see prospects for the 1Y LPR to fall to 3.55% and 5Y LPR to 4.20% by end1Q23. […] Meanwhile, the 1Y LPR may stay unchanged this month given flushed domestic liquidity. The loosening bias for the monetary policy may start to reverse in 2H23 should the economy show stronger rebound and inflation quickens.”

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