PBoC: to further improve the monetary policy framework

PBoC: to further improve the monetary policy framework

Beijing: The People's Bank of China (PBoC) has entered a period of observation in its monetary policy, as new yuan loans contracted for the first time in 20 years in July. This unexpected contraction, amounting to 50 billion yuan ($6.97 billion), marks a significant shift in the central bank's approach [1].

The July figures, calculated by Reuters based on PBoC data, indicate a substantial decline from June's 2.24 trillion yuan, marking the first contraction since July 2005 and the largest monthly decline since December 1999. Analysts had forecast new loans to reach 300 billion yuan, highlighting the disparity between expectations and actual performance [1].

The contraction in new loans, particularly in corporate and household sectors, underscores the challenges faced by the Chinese economy. Household loans contracted by 489.3 billion yuan in July, while corporate loans plunged to 60 billion yuan from 1.77 trillion yuan in June. These trends suggest a continued slowdown in domestic demand and a prolonged property market crisis [1].

Despite the contraction in new loans, broader credit growth shows signs of improvement. Outstanding yuan loans rose 6.9 percent year-on-year in July, and M2 money supply expanded by 8.8 percent, exceeding analyst expectations. These figures suggest that while new loans have decreased, overall credit and liquidity in the economy have remained robust [1].

The PBoC's strategic pause in monetary policy indicates a shift from rate cuts and reserve requirement ratio (RRR) adjustments. Instead, the central bank is focusing on structural monetary policy tools to ease economic conditions. This approach aligns with the ongoing trade negotiations with the United States and the broader efforts to stimulate economic growth [1].

The PBoC's decision to wait and see reflects the central bank's cautious approach to monetary policy. As the global trade environment remains uncertain and domestic demand remains weak, the PBoC is likely to continue monitoring the economic situation closely before making further policy adjustments.

References:
[1] https://kuwaittimes.com/article/31855/business/chinas-bank-loans-unexpectedly-contract-for-first-time-in-20-years/