Signs of stronger monetary growth
Print Edition
CHINA’S monetary environment loosened in June as stimulus measures in the first half began to take effect, the HSBC China Monetary Conditions Indicator showed yesterday.
Stronger growth in the money supply and a fall in the real interest rate had a positive effect, while the real exchange rate was a bigger drag on the indicator than in May, the report said.
“The improvement is positive news as it indicates that the effects of the recent policy rate and reserve requirement ratio cuts are feeding through to the economy,” said HSBC chief China economist Qu Hongbin. “But the magnitude of the recovery remains modest.”
Qu said more monetary and fiscal easing measures were still needed in the second half to strengthen and sustain the recovery.
The MCI, measuring the easiness of monetary conditions, rose to -5.4 in June from -5.9 in May and -6.2 in April.
The May reading was the first monthly pickup since February, and HSBC considered the monetary conditions “slowly improving.”
The increase of M2, the broad measure of money supply, to 11.8 percent in May from 10.8 percent in April, was among the major contributor to the easier environment. A policy rate cut of 0.25 percentage points in June 27 and a cool 1.4 percent inflation in June also helped in lowering the real interest for borrowers.
However, the real interest rate still remained above the post-2008 level, and a stronger yuan against a basket of currencies also pared government efforts to lower funding costs.
HSBC expects the People’s Bank of China to cut benchmark one-year lending rate to 4.6 percent in the third quarter from the current 4.85 percent.
The central bank cut interest rates three times and the banks’ reserve requirement three times in the first half to support the economy.
Economists expect better economic growth in the second half of this year.
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