Chinese Yuan: Credit softness may spur PBoC easing – Commerzbank

Commerzbank’s Charlie Lay and Dr. Henry Hao point out USD/CNY is stable around 6.75, with their model implying a slightly stronger PBoC fix. China’s July credit and money supply data are expected to show modest easing, and a weak print would reinforce subdued private borrowing and increase pressure on the PBoC to deliver more targeted monetary easing.

China credit data key for Yuan

"China's July credit and money supply figures are due this week, with markets watching closely for signs of whether domestic demand is stabilising after a string of disappointing readings. Consensus expects M2 growth to ease marginally to 7.9% yoy from 8.0% in June, while M1 is forecast to slip to 3.9% from 4.0%. Aggregate financing on a year-to-date basis is seen rising to CNY21.9tn vs CNY20.8tn in June, though new yuan loans outstanding are expected to tick down slightly to CNY10.6tn vs CNY10.7tn previously."

"A softer-than-expected credit print this week would reinforce the view that private sector borrowing appetite remains subdued, consistent with the pattern seen in June when aggregate financing missed forecasts."

"On the fiscal side, China has completed roughly 90% of its 2026 local government debt swap quota, with CNY1.8tn of hidden debt refinanced into official bonds. Separately, new special bond issuance by local governments reached CNY2.5tn, or about 58% of the full-year allowance of CNY4.4tn, leaving meaningful room for acceleration in H2."

"A weak July credit print would add pressure on the PBoC to ease further. The central bank has signalled it intends to make monetary policy more targeted and flexible, with the seven-day reverse repo rate remaining the primary policy anchor."

"In FX, USD/CNY was little changed at 6.75 and offshore USD/CNH rose 30 pips to 6.75 yesterday."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)