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China likely considering fresh policy easing

Reuters

HONG KONG (MarketWatch) -- China could be on the verge of a fresh policy loosening to help stimulate the economy and guard against faltering export demand.

Chinese authorities are now considering a cut to banks' reserve-requirement ratio, according to analysts, who say Beijing was likely alarmed about data showing credit growth in an apparent stall, following reports of weak bank lending in June.

Credit Agricole CIB said in a note Wednesday that authorities will need to loosen rules on the ratio of funds banks must set aside with the central bank.

The French bank's analysts said the move, which would follow on the heels of an RRR cut in May, was "needed to support the economy via boosting bank lending."

Underscoring the concerns that not enough funds are circulating, the People's Bank of China on Tuesday carried out a reverse repurchase auction, sending 143 billion yuan ($222.5 billion) into the banking system by buying up short-term notes.

The move was the largest such liquidity injection in six months.

Meanwhile, Chinese state media reported Tuesday that Chinese banks issued far fewer yuan-denominated loans in June than had been expected, indicating slowing economic conditions and what may be a weak appetite among corporations to take on new debt.

The four largest Chinese lenders extended 180 billion yuan in new local-currency loans for the month, a drop of 22% from a month earlier, according to a report in the state-run Shanghai Securities News, citing an unidentified banking source.

Expectations were that Chinese banks would accelerate their lending activity to 1 trillion yuan for the month, according to a poll by Xinhua news agency. The anticipated pickup was seen as driven in part by relatively subdued new-loan issuance of 793.2 billion yuan in May and 681.5 billion yuan in April.

Nomura analysts said China's monthly lending is likely to be short of target if the reported lending figure -- attributed to China big four banks, which account for 30% to 40% of total system credit -- are accurate.