China loosened monetary conditions last quarter at the fastest pace in almost two years, testing the waning effectiveness of credit in supporting economic growth, Bloomberg reported Monday.
A weighted average of loan growth, real interest rates and China’s real effective exchange rate rose 6.71 points to 82.81 in the second quarter from the previous three months, Bloomberg’s China Monetary Conditions Index showed.
That is the biggest jump since the July-September period of 2012, with May and June’s numbers the first back-to-back readings above 80 since January 2012.
New yuan loans in July will be a record high for that month, according to a Bloomberg News survey of analysts before data due by Aug. 15, suggesting officials are keeping the credit tap open even as debt risks mount.
While consumer inflation below the government’s goal allows room for more easing, economic data will determine how far policymakers go.
“The central bank worries more about inflation and financial risks, but the government is worried more about growth and employment,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong. “Growth will rebound in the second half, so that will give the central bank some support in not expanding credit and liquidity further.”
With Premier Li Keqiang saying he wants financing charges cut for some sectors to support growth, “the central bank will still be under pressure, not necessarily to expand credit, but to lower lending costs,” Ding said.
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