China Bank Lending Declines Sharply In July

China's bank lending declined sharply in July, the People's Bank of China said on Wednesday.

Banks extended CNY 1.08 trillion in new yuan loans in July. This was well below June's CNY 2.12 trillion lending and economists' forecast of CNY 1.2 trillion.

Total social financing decreased notably to CNY 1.06 trillion compared to CNY 3.67 trillion in June. The expected level was CNY 1.7 trillion.

The M2 broad money supply expanded 8.3 percent annually, following June's 8.6 percent increase. The M2 was forecast to advance 8.7 percent.

July's reserve requirement ratio cut points to relaunched efforts by the PBoC to push down borrowing costs and further RRR and policy rate cuts are expected to follow, Sheana Yue and Mark Williams, economists at Capital Economics, said. But credit growth is unlikely to rebound.

Indeed, the PBoC's reported mandate for banks to cap new lending for 2021 at last year's levels would require a further pullback in loan growth over the rest of the year, the economists noted.

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