PBOC Expected to Ease Policy amid Disappointing Loan Growth in China

Summary

  • The People’s Bank of China (PBOC) is projected to announce a more modest policy easing in the following weeks, according to experts.
  • PBOC’s decision follows the commitment of leading authorities to advance policy adjustments to aid the 2024 economic revival.
  • Despite increasing from October’s 738.4 billion yuan, banks granted 1.09 trillion yuan ($151.73 billion) in new yuan loans in November, falling below the anticipation of analysts.
  • This increase in lending has not been enough to meet the forecasts, even though broad credit growth went up in November, partially due to a surge in government bond releases.
  • The estimation of additional policy support coming in later stages without excessively impacting credit growth are suggested by experts.

Loan Growth Status

Statements made last month mention that PBOC has requested several banks to advance some of the loans they anticipated extending in early 2024 to the end of 2023, advising against over-lending in the initial quarter of 2024. Household loans, which include mortgages, expanded by 292.5 billion yuan in November after shrinking by 34.6 billion yuan in October.

Economic Factors Impacting Loan Applications

The weak consumer confidence in part due to a intensifying property crisis and growing unemployment have significantly impacted the economy this year. Corporate loans, conversely, escalated to 822.1 billion yuan from 516.3 billion yuan in October.

Policy Pledge by PBOC

Minsheng Bank’s chief economist, Wen Bin, suggests that there may still be an opportunity to lower the reserve requirement ratio and interest rates to help sustain stable liquidity in the banking system and help reduce financing costs. Central bank chief Pan Gongsheng has committed to an accommodative monetary policy to aid post-pandemic recovery. He also advocated for structural reforms to reduce dependency on infrastructure and property for growth.

Economic Recovery Measures

The PBOC’s supportive policy measures include cuts to some loan interest rates and cash injections in recent months. This contrasts the tightening strategies of other major economies grappling with inflation. In September, the PBOC made a second cut of the year to banks’ reserve requirement ratio with another cut expected to be coming in the next weeks.

Impact on Lending Systems

The growth of outstanding yuan loans increased by 10.8% in November from a year earlier compared with a 10.9% increase in October, contrary to the predicted 11% rise. The annual growth of outstanding total social financing (TSF), a broader gauge of credit and liquidity in the economy, rose to 9.4% in November up from 9.3% in October. TSF incorporates off-balance sheet forms of financing that exist outside the traditional bank lending system, such as initial public offerings, trust company loans, and bond sales.

Decisions reached by PBOC have a potential to significantly impact forex markets and influence certain asset classes. For the trading community, the financial policies and strategies of one of the world’s largest economies certainly hold considerable substance. The recent changes may lead to shifts in currency values which traders should consider while making future strategy decisions.

PIP Penguin
Logo