China: Credit data disappoints in July
In July, Chinese banks distributed CNY 346 billion in new yuan loans, down from June’s 3,051 billion figure and driven by lower loans to corporates and households. M2 money supply increased 10.7% year on year in July (June: +11.3% yoy). The outturn marked the worst reading since April 2022. Meanwhile, the stock of total social financing (TSF)—a broader measure of credit and liquidity in the economy—expanded 8.9% in the month (June: 9.0% yoy). The data on new yuan loans, TSF and M2 were all below market expectations, a sign of weak domestic demand, tepid economic sentiment and the depressed property sector.
Regarding monetary policy, in mid-August the PBOC cut the 1-year loan prime rate and 7-day reverse repo rate by 10 basis points and the medium-term lending facility by 15 basis points, after a host of policy rates were cut by 10 basis points in June. Further monetary easing is on the cards later this year as the Bank aims to stabilize the economy.
On the outlook for monetary policy, ING’s Robert Carnell said:
“At the current juncture, QE [quantitative easing] does not seem to be the right response to what we are seeing. Nor does a large dollop of fiscal stimulus. China is undergoing a painful transition to a less debt-fuelled, less property-centric and more consumer-driven economy. An ’emergency’ policy like QE that primarily inflates real and financial asset prices does not appear to have a strong role to play here. […] More policy measures will be needed and more will certainly be delivered. The PBoC has not ended the rate-cutting cycle yet, and there will be further iterations of policy rate cuts along the lines of what we have seen.”