China's money supply growth may have rebounded

China's M2 growth is expected to have picked up to 11.1% y/y in May from 10.1% in April, mainly owing to an increase in the money multiplier. The 100bps RRR cut in April likely raised the money multiplier, while reserve money growth remained sluggish due to capital outflows, the lack of liquidity injections by the central bank, and a possible increase in fiscal deposits, Standard Chartered forecast CNY 1.035tn of new local-currency loans and CNY 1.418tn of total social financing (TSF) in May, both higher than April levels. 

The pace of new CNY lending likely accelerated in May, driven by seasonal patterns and the authorities' determination to boost credit. CNY loans to have continued to dominate TSF, contributing slightly more than 70%, expects Standard Chartered. Off-balance-sheet activities likely remained contained, while equity and bond financing appears to have picked up. CNY credit outstanding expanded 14.1% y/y, unchanged from the previous month, estimates Standard Chartered. 

Growth in the outstanding TSF stock may have decelerated further to 12.2% y/y. While May data is likely to show early signs of stabilisation, analysts expect measured policy easing to continue as Q2 growth slows further. Easing measures are likely to include further RRR cuts (a total of 100bps is expected by end-2015) and targeted monetary and fiscal policy support to boost credit demand.