(Yicai Global) June 14 -- China’s credit expanded at a slower clip in May than a year ago as new yuan-denominated loans tumbled and broad money supply growth slowed, prompting the country’s central bank to slash interest rates yesterday. And there are more cuts coming, chief economists said.

New yuan loans sank 26 percent last month from a year earlier to CNY1.4 trillion (USD195.5 billion), according to statistics released by the People’s Bank of China.

M2, a broad measure of money supply that includes cash in circulation and all deposits, jumped 11.6 percent last month from a year earlier to CNY282.1 trillion (USD39.4 trillion), a slowdown from April’s surge of 12.4 percent.

While M1, which is an estimate of cash and checking account deposits, climbed 4.7 percent to CNY67.5 trillion (USD9.4 trillion), a drop of 0.6 percentage point from April’s growth.

The slowdown in M2 growth in May was mainly because of the high base number last year and weaker credit issuance last month, Wen Bin, chief economist at China Minsheng Bank, said. M2 growth will continue to drop but slowly, he added.

Credit loans slumped last month due to seasonal and structural reasons, but it also reflects insufficient demand in the real economy for financing, Ming Ming, chief economist at Citic Securities Research Institute, told Yicai Global.

To boost demand in the real economy, the PBOC trimmed the seven-day reverse repurchase rate to 1.9 percent from 2 percent yesterday, the first cut in 10 months, injecting CNY2 billion (USD279.4 million) into the financial system.

It also revised downward the interest rates on its overnight, seven-day and one-month standing lending facility, another liquidity adjustment tool, by 10 basis points each to 2.75 percent, 2.9 percent, and 3.25 percent, respectively.

The PBOC will lower the medium-term lending facility rate on June 15 and the loan prime rate on June 20, Ming said. This will help financial data such as credit growth to rebound in the next few months.

Looking into the second half, there are likely to be further cuts in the reserve requirement ratio and interest rates, Zhong Zhengsheng, chief economist at Ping An Securities, said on his WeChat account.

Editor: Kim Taylor