China tightens financial conditions more visibly to stem asset bubbles: CICC

BEIJING — A notable deceleration of China's credit expansion indicates a more prudent monetary policy stance enabling it to address inflating asset bubbles, according to a recent report by China International Capital Corp. (CICC).

Adjusted growth of total social financing (TSF), a more comprehensive measure of the speed for credit expansion, decelerated notably to 15.6 percent in March from 16.4 percent in February.

Money market rates also climbed higher. The weighted average interbank offered rate and pledged repo rate edged up to 2.62 percent and 2.84 percent, respectively, in March.

"The tightening of financial conditions in March was likely driven by the quarter-end MPA, but it may have also resulted from a more prudent monetary policy stance and further policy efforts toward financial deleveraging," the report noted.

Apart from raising the reverse repo rates in March, the central bank has also stepped up financial deleveraging efforts.

In the meantime, China Banking regulatory Commission (CBRC) has also issued stricter regulations towards interbank transactions and off-balance-sheet financing.

"We would continue to closely monitor the change in adjusted TSF growth and interbank rates to gauge the (tightening) effect of these new policies, as the execution of the new regulations holds the key to maintaining a stable financial market during the intricate financial deleveraging process," according to the report.

"However, we do not expect prolonged and excessive tightening of financial conditions in the near future, as CPI inflation is expected to remain low and the regulators have vowed to maintain financial market stability throughout the financial deleveraging process," it added.