Forex Flash: An improvement in Chinese economy may look to contain prices – NAB

China’s monetary aggregates were also released for January, showing a sharp up-tick in credit for the month. While this is a positive sign for credit demand in the economy, it could also partly represent a bringing forward of demand ahead of LNY. Similarly, reports of a clamp down on credit issuance late last year (as some banks approached their credit limits) may have resulted in some pent-up demand as well. According to the NAB Analyst Team, “While the magnitude of these effects is difficult to gauge, they could suggest that the strength in January may not be sustained over coming months.”

It is worth noting that much of the increase in credit demand has been serviced via strong growth in non-bank financing. This is likely to concern authorities, particularly in the face of potential hot money inflows from quantitative easing in developed economies.

Finally, CPI data shows that inflation pressures remain under control, at least for the time being, although the shift of LNY to February will likely see a one-off spike in CPI next month. “With the economy showing signs of improvement, we may start to see attention shifts from supporting the economy to containing prices – a sentiment hinted at with the latest quarterly monetary report from the PBoC.” the team adds.