Chinese Monetary Tightening Accelerates In May As Loans, M2 Drop

Tyler Durden's picture

Goldman Sachs summarizes the just released monetary update from China, which some expected could announce a formal rate hike over the weekend.

Key takeaways:

  • May monetary data confirms our understanding that there was no loosening of monetary policy in May.
  • We believe policy makers will maintain a tight policy stance at least for another month from now.
  • We expect a normalization of monetary policy (not an aggressive loosening as in 2H2010) in 2H2011 when inflation is expected to moderate.

What happened:

  • Commercial banks extended Rmb551.6 billion in loans in May (market consensus: Rmb650 billion), down from Rmb739.6 billion in April. Outstanding CNY loans grew by 17.1% yoy in May (our forecast: 17.1% yoy, market consensus: 17.2% yoy), down from 17.5% yoy in April. The mom; s.a. ann. growth rose to 16.7%, up from 10.6% in April.
  • M2 growth came in at 15.1% yoy (market consensus: 15.5% yoy), down from 15.3% yoy in April. The mom; s.a. ann. growth rose to 14.3%, up from 3.6% in April.

Our views:

  • May monetary data confirm our belief that there was no loosening of monetary policy in May which put continued pressure on domestic demand growth.
  • We believe policy makers will maintain a tight policy stance at least for another month from now as inflationary concerns remain high while there have been some signs of an incremental rebound in activity growth compared with April as suggested by the May PMI data.
  • We expect a normalization of monetary policy in 2H2011 when inflation is expected to moderate (by normalization we mainly mean incrementally less strict controls on the quantity of money and credit supplied instead of an aggressive loosening as in 2H2010 or outright stimulus by cutting benchmark interest rates).

Some charts and tables: