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China’s
10-month campaign to relax monetary policy is showing signs of an impact as
financial conditions ease, a shift that could help stabilize the nation's
growth rate.
Bloomberg’s
China Monetary Conditions Index, a gauge that includes inflation-adjusted
interest rates and the exchange rate, improved for a second month in August,
the first back-to-back gain since 2013.
Episodes
of improvement in the past have tended to presage either an acceleration or a
stabilization in economic growth.
The
economy is muddling through a slump in exports and a downturn in investment
growth thanks to an overhang of debt.
The
best bet for a pick-up may be continued gains in consumer spending, along with
a turnaround in public projects and that's where financing conditions come in.
“As
monetary policy has been loosened, there has already been a sizable turnaround
in credit growth that should feed into stronger economic growth over the months
ahead,” said Mark Williams, chief Asia economist for Capital Economics Ltd in
London.
“We’ll
certainly see that in the monthly data in the fourth quarter.”
Premier
Li Keqiang has responded to the economy's slowdown with policy easing measures
including five interest rate cuts since November, reductions in the amount of
deposits banks must hold as reserves, a surprise currency devaluation last
month and increased fiscal support.
The
HSBC China Monetary Conditions Indicator also rose to a sixmonth high in
August, after stalling in July.
The
Bloomberg and HSBC gauges are designed to give a sense of how monetary
conditions evolve over time, with higher values indicating looser monetary
conditions and lower values signaling tightening.
“We
expect more policy easing to generate a modest growth rebound” in the second
half, economists led by Hong Kong-based Qu Hongbin, chief economist for greater
China at HSBC Holdings Plc, wrote in a note this month.
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