Chinese Interest Rates Set to Fall Further after Lending Trough in October: China Great Wall’s Jiang Fei

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Jiang Fei ( 蒋飞), chief macro-analyst with China Great Wall Securities, expects interest rates in China to further decline after a sharp drop in new renminbi loans in October.

“In October, financial data fell short of expectations, with the M1 and M2 money supplies as well as new renminbi loans and toal social financing all declining by considerable degree,” writes Jiang in a Sina Weibo post. “This again reflects an overall trend of large-scale decline in financial demand.

“In order to address the current reappearance of weakness in overall financing and lending, interest rate declines have become something to be expected.”

Jiang expects two types of interest rate cuts – structured cuts using targeted monetary policy to improve the confidence of households and enterprises, and overall cuts via loan prime rate (LPR) adjustments.

“This year there have been two downward reductions to the 5-year LPR in May and August that both arrived during months when published lending data was comparatively poor, and in the second month of their respective quarters.

“For this reason we believe that another comprehensive rate cut can still be expected, as early perhaps as this month.”

Jiang’s analysis arrives after new renminbi loans dropped to 615.2 billion yuan in October, from a print of 2.47 trillion yuan in September.

Year-on-year M2 money supply growth decelerated to 11.8% at the end of October as compared to 12.1% at the end of September, for the this consecutive quarter of slow down.

Growth in the M1 money supply balance fell to 5.8% in October, as compared to a print of 6.4% for the end of September, for the first time since June that the print has dropped beneath 6%.