The squeeze in SHIBOR rates in the month that tamed financing is now over, with rates back to where they were in May. However, it does seem unlikely that lending will go back to the levels where it was before given the actions of the PBC have likely changed the ground rules that financiers will play by. No longer can they count on policy makers to straight away sort out problems as soon as they arise.
The big unknown is what will the impact on growth be? It should be negative, but perhaps not as troubling as some have made out. To be sure, the massive surge in financing at the start of the year did little to boost real activity, which has been slowing.
It is probably too early to gauge, but so far the damage doesn't appear too severe. The steel economy appears to be travelling better than expected, with current high production rates and falling steel inventories suggesting end-use demand is still ticking over, even if steel inventory is too high. Power demand looks soggy, but that has been the case all year. Exports look to be a drag, but that has little to do with credit.
So there are few signs that growth is currently being crunched. But it remains the case that the mix of activity is troubling for policy makers, which means they may continue to pose downside risks growth.
