It has been difficult to forecast China's money growth since September 2014 when the banking regulator announced it would impose punitive measures on large volatility in banks deposits. Chinese banks then started to behave and scale back their quarter-end deposit-snatching competition.
As a result, the money growth rates derived from the stock data have diverged from those adjusted and reported by the central bank. Compounding this is the unpredictable nature of the post-holiday effects, thus forecasting money growth in March becomes a big challenge.
Observing the adjustments done by the central bank for September and December data last year, the reported M2 growth is likely to have shown little change in March. However, the unadjusted data should have shown a notable drop. The growth of both bank lending and non-banking credit is expected to soften.
Societe Generale forecasts CNY1,100bn net increases in bank loans, not an unusual number for March - and it implies a small decline in the yoy growth of the stock of bank loans to 14% from 14.1%. Meanwhile, credit growth in the shadow bankingsector is likely to remain affected by tighter regulations and rising risk aversion. The monthly volume might rebound, albeit less than suggested by a normal seasonal pattern.
The official FX reserves to decline further from $3,840bn at end-2014 to $3,800bn at end-Q1 2015. The sharp depreciation of the euro should have been a factor, and the central bank also sold down its FX reserves at the beginning of the year to support the yuan.
