Financing seen stable ahead

China's financing activity maintained steady momentum in the first half with further improvements in June, pointing to recovering market confidence as monetary easing takes effect, said the People's Bank of China, the country's central bank, on Monday.

With uncertainties and challenges still lingering at home and abroad, officials and experts said that the PBOC would maintain an accommodative monetary stance in the second half, with further easing moves likely to be moderate.

The country's aggregate social financing — the total amount of financing to the real economy — stood at 22.83 trillion yuan ($3.18 trillion) in the first six months, up by 4.74 trillion yuan from the same period last year, the PBOC said.

Meanwhile, the country's outstanding aggregate social financing totaled 430.22 trillion yuan as of the end of June, the central bank said, marking an 8.9 percent year-on-year increase, speeding up from 8.7 percent as of the end of May.

Zou Lan, deputy governor of the PBOC, said at a news conference on Monday that the transmission of monetary policy takes time, and the effects of monetary measures already implemented will continue to unfold.

Zou said the PBOC will continue to pursue a moderately loose monetary policy, calibrate the strength and pace of policy implementation, continue to create an appropriate aggregate financial environment and make good use of structural monetary policy tools to step up support for key areas and weak links, with a focus on supporting scientific and technological innovation and boosting consumption.

"Our goal is to better support the expansion of domestic demand, stabilize social expectations, stimulate market vitality and contribute to achieving the full-year economic and social development goals and tasks," he said.

Indicative of its accommodative policy stance, the PBOC also said on Monday that it would conduct a 1.4 trillion yuan outright reverse repo operation — a tool that the central bank introduced last year for liquidity management — on Tuesday to maintain ample liquidity in the banking system.

Looking at the second half, Wen Bin, chief economist at China Minsheng Bank, said there remains room for reductions in the reserve requirement ratio — the proportion of deposits banks must keep as reserves — and interest rates given mounting uncertainties in domestic and external demand and relatively high real financing costs.

Wen said he believes that further easing moves by the PBOC would be moderate as the central bank is also focused on stabilizing banks' net interest margins, predicting that a 0.5 percentage point cut in the RRR and a 0.1 percentage point cut in interest rates may be likely in the second half.

Zou added that while the trajectory of the US dollar exchange rates remains uncertain, the renminbi has a solid foundation to maintain general stability amid two-way fluctuations.

"China does not seek to gain international competitive advantages through currency depreciation," Zou said, adding that the central bank will continue to let the market play a decisive role in the formation of the exchange rate, maintaining its flexibility while preventing exchange rate overshooting.

According to the central bank, the country's broad money supply, or M2, reached 330.29 trillion yuan at the end of last month, up 8.3 percent year-on-year, compared to a 7.9 percent rise seen a month earlier. Meanwhile, the country's M1 money supply grew 4.6 percent year-on-year as of the end of June, up from 2.3 percent as of the end of May, which analysts said may point to rising spending appetites among market players.