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The great Chinese tightening cycle may already be over, if Citi’s team are to be believed. The country’s aggressive assault on its bank’s lending practices has worked better than expected, and now China may be ahead of its inflation problem.One big reason why increases in required reserve ratios for banks have been so effective at taming inflation is because they’ve controlled growth.
Property tightening policies have reduced credit demand and curbed consumption. The limitations on purchases have reduced transaction volume and net new medium and long term lending to consumers (close proxy to mortgages) have fallen to a two-year low. Moreover, retail sales of furniture, appliances, building materials and other property related products weakened notably in Jan-Feb.
Rate hikes are still needed to stabilise deposits, but given moderating growth and inflation risks, there is no need for aggressive rate hikes either.
With rampant property sector growth under control and inflation tamed, it could be expected that China’s tightening cycle has come to an end, though another oil price spike could change everything.