China Central Bank Reassures on Policy After Credit Slows

China’s central bank reassured investors that monetary policy will continue to support the economy after a sharp slowdown in new credit last month, and said the lending slump was temporary.

The deceleration in the growth of new yuan loans in April was mainly due to a pick-up in a program to swap high-cost local government debt for cheaper municipal bonds, the People’s Bank of China said in a statement on its website on Saturday. No less than 350 billion yuan ($53.6 billion) of such swaps were conducted last month, while aggregating financing growth was affected partly by a decrease in corporate bond issuance, according to the central bank.

The central bank’s statement came after data on May 13 showed that China’s broadest measure of new credit rose less than expected last month, suggesting that the central bank is starting to temper a flood of borrowing. The PBOC said Saturday it will continue to implement prudent monetary policy and create an appropriate financial and monetary environment to facilitate steady economic growth.

Data on Saturday showed China’s economy reverting to slower growth. Industrial production climbed 6 percent in April from a year earlier, down from 6.8 percent in March and missing economists’ estimates for 6.5 percent, while retail sales also missed analyst forecasts, rising 10.1 percent.

Lending Slowdown

That followed figures released a day earlier showing that aggregate financing was 751 billion yuan in April, below all 26 analysts’ forecasts in a Bloomberg survey, and new yuan loans were 555.6 billion yuan, compared with the median estimate for 800 billion yuan.

Additional liquidity injections in the second and third quarters last year to stabilize a volatile stock market led to much higher base numbers for this year’s M2 money supply growth, and the PBOC expects a significant slowdown in coming months before picking up again after September and October, according to the statement. An increase in fiscal deposits and a cooling in the equity market also affected M2 growth, said the PBOC.

IMF says Brexit 'pretty bad to very, very bad'

The International Monetary Fund chief has said a vote by the UK to leave the European Union would have "pretty bad, to very, very bad" consequences.

Christine Lagarde said she had "not seen anything that's positive" about Brexit and warned that it could "lead to a technical recession".

She echoed similar comments made on Thursday by Bank of England governor Mark Carney.

Vote Leave said the IMF had been wrong in the past and was "wrong now".

The IMF said in a report on the UK economy that a leave vote could have a "negative and substantial effect". It has previously said that such an outcome could lead to "severe regional and global damage".

The Fund said a Brexit vote would result in a "protracted period of heightened uncertainty" and could result in a sharp rise in interest rates, cause volatility on financial markets and damage London's status as a global financial centre.

Ms Lagarde said the IMF had a duty to assess the risks of Brexit. It has a mandate to oversee the international monetary and financial system.

The Fund is expected to publish detailed estimates of the economic impact of a vote to leave the EU in the week before the 23 June referendum, the timing of which has been criticised by leave campaigners.

It was not just a domestic issue but an international one as well, Ms Lagarde told a briefing at the Treasury attended by the Chancellor, George Osborne.

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"I don't think that in the last six months I have visited a country anywhere in the world where I have not been asked 'what will be the economic consequences of Brexit?" she said.

"There are plenty of respected individual economists, plenty of respected professional investors, and plenty of entrepreneurs who take a very different view from Christine Lagarde and who have probably been better at foreseeing the future than the IMF."

Britain Stronger in Europe chairman Lord Rose said: "This is yet another economic expert that agrees Britain is stronger in Europe, adding to the comments of the Bank of England."

Former Treasury minister Lord Myners, who backs staying in the EU, added: "Every major independent economic institution, from the Bank of England to the IMF, has made it clear that leaving the EU would damage the UK economy. This is yet more evidence that leaving is a risk we cannot afford to take."

The Fund said it expected UK growth to fall below 2% for the full year in 2016 before returning to an average of 2.25% over the medium term.

However, the IMF said that this "broadly positive" forecast was subject to notable risks, the biggest of which was the EU referendum, but also the low level of household savings, high levels of household debt, a wide current account deficit and concerns that productivity growth will not rise significantly.

Concerns about a possible Brexit may have affected UK markets in recent months, according to the Fund.

It pointed to a 40% decline in the number of commercial real estate transactions in the first three months of the year.

Deciding whether to remain in the EU was a choice for voters to make, the IMF said, adding that "their decisions will reflect both economic and non-economic factors".