Nation tightens financial conditions more visibly: CICC report

A notable deceleration of China’s credit expansion indicates a more prudent monetary policy stance enabling it to address inflating asset bubbles, according to a recent report by China International Capital Corp ( CICC).

Adjusted growth of total social financing ( TSF), a more comprehensive measure of the speed for credit expansion, decelerated to 15.6 percent in March from 16.4 percent in February.

Money market rates also climbed. The weighted average interbank offered rate and pledged repurchase rate edged up to 2.62 percent and 2.84 percent, respectively, in March.

“The tightening of financial conditions in March was likely driven by the quarter- end ( macro prudential assessment risk- tool), but it may have also resulted from a more prudent monetary policy stance and further policy efforts toward financial deleveraging,” the report noted.

Apart from raising the reverse repo rates in March, the central bank has also stepped up deleveraging efforts.

Meanwhile, China Banking Regulatory Commission has issued stricter regulations on interbank transactions and offbalance- sheet financing.

“We would continue to closely monitor the change in adjusted TSF growth and interbank rates to gauge the ( tightening) effect of these new policies, as the execution of the new regulations holds the key to maintaining a stable financial market during the intricate financial deleveraging process,” according to the report.

“However, we do not expect prolonged and excessive tightening of financial conditions in the near future, as ( consumer) inflation is expected to remain low and the regulators have vowed to maintain financial market stability throughout the financial deleveraging process,” it added.