China Remains Watchful On Monetary Easing

This Bystander was not alone in being surprised to see that new bank lending in October rose to 587 billion yuan ($92.5 billion) from September’s 480 billion yuan, suggesting the People’s Bank of China was easing credit conditions a bit. Yet at the same time the increase in the broad measure of the money supply, M2, decreased to 12.9% from 13%, suggesting the central bank had done no such thing. The increase in October’s new bank lending may reflect more an anything the big state-owned banks getting some of their off-balance sheet loans back on their books as policymakers try to get to grips with the large and potentially destabilizing informal lending sector.

Inflation, though moderating, remains persistently high and above official target. Growth, too, is slowing, but is also ahead of target, and there are signs that holiday season retail spending in China’s export markets in developed economies, and particularly the U.S., will not be as dire as first forecast. We still don’t believe that policymakers are ready quite yet to ease monetary policy in any significant way, even if they are standing ready to do so if necessary and are letting money-market rates soften a tad to keep a finger in the wind.

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