JPMorgan: China Loan Growth Slows Further; PBoC May Delay Rate Cuts to Q3
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JPMorgan observes that China's February new loan creation slowed due to seasonal factors, with overall loan growth dropping to a record low of 6.0% year-over-year. While corporate lending showed resilience, household loans contracted sharply, reflecting weak property and auto sales. Medium and long-term corporate loans increased by RMB 284 billion year-over-year, partially offsetting retail weakness.
Total Social Financing (TSF) growth remained stable at 8.2%, supported by front-loaded government bond issuance totaling RMB 1.4 trillion. The credit pulse indicator experienced a slight 0.1 percentage point decline to 4.0%. Broad money supply (M2) growth held flat at 9.0%, while M1 growth recovered to 5.9%, narrowing the M1-M2 gap to -3.1 percentage points.
The People's Bank of China (PBoC) has maintained a moderately accommodative policy stance, emphasizing the need to maintain, rather than further reduce, comprehensive financing costs. JPMorgan notes that ongoing energy shocks may modestly lift CPI, helping the central bank's price recovery goals. However, with rate cuts primarily serving a signaling purpose and net interest margin (NIM) pressures mounting, the PBoC is adopting a more cautious approach.
Consequently, JPMorgan expects the PBoC to delay its first rate cut to the third quarter, pushing the second cut to 2027. A Reserve Requirement Ratio (RRR) cut may occur in the second quarter, potentially substituted by liquidity tools like OMO and MLF.