Money Supply
Confidence Boost Needed For Policy Sustenance To Work
Though money supply came in above expectations, April’s far-weaker-than-expected
credit expansion illustrated the significant downside risks lockdowns have on the
economy. M1 and M2 grew to 5.1% yoy and 10.5% yoy respectively, while new lending
sapped to Rmb0.65t. The data reinforces our view that boosting market confidence is
important to give traction to policy support, though we still expect the PBOC to take
quick action to loosen the policy further to help cushion growth.
WHAT’S NEW
• Credit slumps on stringent lockdown measures. Following the PBOC’s reiteration to
provide timely market support, M1 and M2 grew to 5.1% yoy and 10.5% yoy respectively,
both coming in above consensus estimates. Amid this, the headline numbers were almost as
bad as the figures we saw in Feb 20, when a nationwide lockdown was in effect. New total
social financing (TSF) slumped to Rmb0.91t, down sharply from Rmb4.65t previously,
mirroring the declines in new bank loans of Rmb0.65t, highlighting the difficult financing
conditions for both households and businesses. Consequently, outstanding bank loans and
TSF growth reversed its previous gains, softening to 10.9% yoy and 10.2% yoy, but we
expect it to improve in the months ahead as government bond issuance accelerates.
• COVID-Zero undermines growth stimulus measures. April’s reading shows monetary
policy easing is at work but also highlighted that the key lies not in expanding money supply
but credit demand. Between inflation, rate hikes and the war, hardline adherence to COVIDZero will remain as the biggest overhang for businesses and households, given its inability to
forecast an end to the recurring disruptions. The much talked about monetary stimulus
initiatives hinted by the PBOC’s 1Q22 monetary policy report may help to shore up market
confidence, but it would not be as potent as easing of virus curbs. Nonetheless, our banking
analyst expects the central bank to cut its one-year medium-term lending facility (MLF) rate
by 10bp in the coming days and reserve requirement ratio (RRR) again in 2H22.