Previous posts argued that China was easing monetary policy too slowly, risking an economic “hard landing”. This danger is still present judging from weak April money supply figures.
Slowing inflation and initial easing moves resulted in a pick-up in six-month growth in real M2 late last year but this has reversed more recently, with April’s reading the lowest since October – see first chart. Real M1 is much weaker, contracting over the last six months – similar slippage in 2008 preceded a fall in industrial output.
The three-month repo rate has declined recently, probably reflecting a combination of more generous central bank liquidity supply and market expectations of policy easing – second chart. Time is running out.
