Domestic loans (RMB) increase by 29.72 per cent in China at end-April 2009

Monthly domestic loan increases in China were stable at just below 30 per cent for the second month in a row. After 29.78 per cent increases in March, RMB loans rose by 29.72 per cent in April. Still, even though this pace is much above the 15 per cent threshold of the “neutral stance”, in the short-term this will not trigger inflation. Indeed, high growth rates of credit are necessary to revive the economy and save it from deflation. But again, a good plan to fight the crisis has an exit option.

Domestic loans (RMB) increase by 29.78 per cent in China at end-March 2009

China’s monthly domestic loan increases jumped by another 5.6 percentage points in March 2009 and increased a whopping 29.78 per cent over March 2008. Even though this rate is impressive and much higher than the 15 per cent threshold of the “neutral stance”, in the short-term this will unlikely trigger any inflationary threat. On the contrary, high growth rates of credit are needed to revive the economy and save it from deflation. But watch out for the medium to long term: An exit option from expansionary policies will be needed sooner rather than later!

Domestic loans (RMB) increase by 24.17 per cent in China at end-February 2009

China’s monthly domestic loans jumped by 2.84 percentage points in February 2009 and increased 24.17 per cent over February 2008. Compared to December 2008 the rate of growth is now up by more than 5.4 percentage points. This is great news in a situation where bank loans worldwide are declining along the unfolding of the global crisis.

Even though the rates are impressive and much higher than the 15 per cent threshold of the “neutral stance”, in the short-term they will not trigger an inflationary threat. On the contrary, high growth rates of credit are needed to revive the economy and save it from deflation. And it works well in China. The rising rates of domestic loan increases indicates that the monetary instrument of “window guidance” (cf. Instruments of Monetary Policy in China) is still heavily and effectively used in the Chinese context. Through this, the PBC uses its quantity-based direct monetary policy approach to support the fiscal package announced in November 2008.

Domestic loans (RMB) increase by 21.33 per cent in China at end-January 2009

China’s monthly domestic loan increases in January 2009 jumped by impressive 2.57 percentage points. and increased 21.33 per cent over January 2008. This is good news as bank loans around the world are virtually halted and authorities are desperately trying to get the credit markets going again. Similarly to the causes behind the increase in monetary aggregate M2, the jump in domestic loans comes as a consequence of the fiscal and monetary package adopted in early November.

But much more, the jump also indicates that the monetary instrument of “window guidance” (cf. Instruments of Monetary Policy in China) is still heavily and effectively used in the Chinese context. The policy of “window guidance” uses benevolent compulsion to persuade banks and other financial institutions to stick to official guidelines. Central banks put moral pressure on financial players to make them operate consistently with national needs. Through this, the PBC uses its quantity-based direct monetary policy approach to  support the fiscal package announced in November 2008.

Domestic loans (RMB) increase by 18.76 per cent in China at end-December 2008

China’s monthly domestic loan increases in December 2008 rose above the 15-per-cent thresohold for the second time after November. The growth rate increased strongly by 2.74 percentage points from 16.02 per cent in Novmber to 18.76 per cent in December.

Just like the jump in monetary aggregate growth, the increase comes as a consequence of the fiscal and monetary package adopted in early November to face the financial crisis. In the present situation, an increase of the rate of growth of domestic loans above 15 per centage points is tolerable (the 15 per cent threshold is important in predicting inflation rates as it marks the upper limit of a “neutral stance” of domestic loan increase; see Geiger, 2008: 27-28; and http://mgeiger.wordpress.com/strategy/). Considering the time lags of monetary policy, however, it is important that any growth supporting monetary policy needs to be of temporary nature – i.e. less than 1 year - to ensure long-term price stability.

Domestic loans (RMB) increase by 16.02 per cent in China at end-November 2008

China’s monthly domestic loan increases in November 2008 rose above the 15-per-cent thresohold for the first time in 8 months. The growth rate increased by 1.44 percentage points from 14.58 per cent in October to 16.02 per cent in November.

The 15 per cent threshold is important in predicting inflation rates as it marks the upper limit of a “neutral stance” of domestic loan increase (Geiger, 2008: 27-28; and http://mgeiger.wordpress.com/strategy/). This time, the (temporary) increase comes as a consequence of the fiscal and monetary crisis package adopted in early November.  In the present situation, an increase of the rate of growth of domestic loans above 15 per centage points is tolerable. Considering the time lags of monetary policy, however, it is important that any growth supporting monetary policy needs to be of temporary nature (in my view less than 1 year) to ensure long-term price stability.

Domestic loans (RMB) increase by 14.58 per cent in China at end-October 2008

China’s monthly domestic loan increases are below-15-per-cent for eight months now. The 15 per cent threshold is important in predicting inflation as it marks the upper limit of a “neutral stance” of domestic loan increase, which tends to translate into 1 to 3 per cent inflation rates. The PBC defines domestic loan increase as one of its intermediate targets (Geiger, 2008: 27-28; and http://mgeiger.wordpress.com/strategy/).

Domestic loans (RMB) increase by 14.73 per cent in China at end-September 2008

RMB loans increased by 14.73 per cent year-on-year in September 2008. With more than a half-year of below-15-per-cent monthly growth rates (March, April, May, June, July, August and September), rates now confirm the easing of inflation. This due to the insight that there is a “neutral stance” of domestic loan increase in China from 10 to 15 per cent (Geiger, 2008: 27-28; and http://mgeiger.wordpress.com/strategy/), which would translate into 1 to 3 per cent inflation rates. The PBC defines domestic loan increase as one of its intermediate targets.

Domestic loans (RMB) increase by 14.29 per cent in China at end-August 2008

RMB loans increased by 14.29 per cent year-on-year in August 2008. With six months of below-15-per-cent growth rates (March, April, May, June, July and August) rates now definitely hint to an easing of the inflationary thread, most pronounced towards the end of the year. This due to the insight that there is a “neutral stance” of domestic loan increase in China from 10 to 15 per cent (Geiger, 2008: 27-28; and http://mgeiger.wordpress.com/strategy/), which would translate into 1 to 3 per cent inflation rates. The PBC defines domestic loan increase as one of its intermediate targets.

Domestic loans (RMB) increase by 14.58 per cent in China at end-July 2008

RMB loans increased by 14.58 per cent year-on-year in July 2008, slightly up from the month before (0.46 percentage points). Still, this is good news since domestic loan increases are now solidly back to the “neutral stance” of 10 to 15 per cent (Geiger, 2008: 27-28; and http://mgeiger.wordpress.com/strategy/). With five months of below-15-per-cent growth rates (March, April, May, June and July) rates really hint to an easing off of inflation, particularly towards the end of the year.