To our mind, the new bank lending numbers, for the first five months of this year, and the slowest expansion of credit since 2008, do not signal much by way of a slowdown in the economy, or at least not by as much as some commentators suggest. Our sense is much more that central government is enforcing its lending quotas on local governments more effectively than it has done in the past, as well as shifting some money into capital reserves as a result of higher capital ratio requirements imposed on the big banks.
We also note that the money supply, on its broad M2 measure, was still up 15.1% in May over the same point a year ago. Inflation is still persistently and unacceptably high, suggesting further interest rate rises are likely. Growth will be kept robust enough to absorb them.
That all said, as bank lending quotas are one of the best of the few tools of monetary policy that the central bank possesses, we are seeing some reigning in of the expansionary stimulus that followed the 2008 global financial crisis, as is central bank policy. Yet, as ever, what the government takes away, it can give back if circumstances demand it.