In response to the rapidly slowing economy, the People’s Bank of China cut lending rates, reduced the reserve requirement ratio, and relaxed its credit policy. The central bank pledged, at its Q1 Monetary Policy Committee meeting, to provide more substantial support for the real economy, especially for small- and medium-sized enterprises, green, and agricultural financing.
We also expect more focus on the implementation of monetary policy by expanding the scale of new loans, lowering real interest rates on bank loans, and easier access to market financing for the private sector.
Credit growth in April increased 10.2% y/y, reflecting further fiscal easing through the front-loading of government bond issuance. However, the reading was weaker than in March due to a large fall in new loans and decrease in corporate bonds. A sustained improvement in credit growth is doubtful, given the authorities’ commitment to keep the macro leverage ratio broadly stable.
The Government Work Report vows to stabilise land and house prices and to roll out city-specific housing measures. While the loosing of policy will take time, we still expect an easing of regulatory and macro prudential policies, including lowering payment ratios, cutting mortgage rates, and relaxing home-purchase restrictions to help restore some confidence in the battered sector.