China’s bank loans likely to increase significantly in January, PBoC to hike 7-day reverse repo rates in 2018

China’s monetary supply data slowed in the month of December. M1 and M2 slowed on a year-on-year basis to 11.8 percent and 8.2 percent, respectively. The slowdown in monetary supply data was mainly because of seasonal factors and not subdued demand. Banks usually lower their loan extensions in December because of tight loan quotas and capital charges. In most of the years since 2010, new yuan loans have lingered in the range between CNY 450 billion and CNY 700 billion.

According to an ANZ research report, bank loans are likely to increase considerably in January 2018 because of solid demand. In spite of the sluggish headline credit figures for December, the sum of trust and entrust loans had increased CNY 117.6 billion, showing that Chinese corporates likely turned to other channels for funding because of the tight supply in bank loans, noted ANZ.

“We thus expect new yuan loans to rise significantly in Q1 2018, when banks’ loan quotas are refreshed”, added ANZ.

With deleveraging being a policy priority in the medium-term, the second slowing in credit would not result in monetary easing. In the rates market, bond yields moved lower as a knee-jerk reaction to the easing in the monetary supply data.

“We still expect the PBoC to control the injections of base money and raise the 7-day reverse repo rates by 35bps in 2018”, stated ANZ.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was neutral -31.4857, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -61.3564. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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