China Central Bank Tightening Policy Working For Now

China’s new bank lending slowed more than expected in December and broad money supply growth also eased, highlighting the policy tightrope the central bank must walk as it tries to contain risky debt levels without braking the economy too hard.

There is little sign of a sharp tightening in monetary policy, but rising money market rates and bond yields in recent months indicate the People’s Bank of China is committed to removing excessive debt from the economy to head off potential financial risks.

But analysts also believe the central bank still needs to support economic growth, and Chinese leaders have pledged to keep growth steady in 2014 while driving long-term reform to put the economy on to a more sustainable footing.

“With inflationary pressures remaining modest, we expect the PBOC to keep the current monetary policy in place,” said Sun Junwei, China economist at HSBC in Beijing, in a research note.

“Even so, we think the PBOC will still strike a balance between mitigating financial risks on the one hand, and stabilizing growth on the other.”

Chinese banks made 482.5 billion yuan ($79.9 billion) worth of new yuan loans in December, lower than a forecast of 600 billion yuan and considerably less than the previous month’s 624.6 billion yuan, central bank data showed on Wednesday.

But analysts believe the slowdown in bank lending also reflected seasonal factors, namely the need for lenders to hold more cash to meet year-end regulatory requirements.

via Reuters

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza