China's M2 growth is unlikely to slow further this year as credit increases will steady with more money channeled into the real economy, a report said.
The Bank of Communications (BOCOM) Thursday said M2 would rise 10 percent year on year in 2018 in a research note.
M2, a broad measure of the money supply that covers cash in circulation and all deposits, was up 9.1 percent by November, down 2.3 percentage points from a year ago.
As China had for years maintained double-digit M2 growth, a dip to below 10 percent in May stoked concerns about negative impact on an economy that was just showing signs of warming up. The growth rate has since been curbed.
BOCOM chief economist Lian Ping attributed the slowing to the government's push for deleveraging and risk control, saying the trend would not persist in 2018.
"As measures to woo capital back to the real economy from the virtual economy have taken effect, social financing and credit increases will hold steady, and it is unlikely for M2 growth to remain on a losing streak," Lian said.
Policy makers decided to maintain a prudent and neutral monetary policy this year at a high-level meeting, saying "the floodgates of monetary supply should be controlled and credit and social financing should see reasonable growth."
Given the situation, liquidity will be largely moderate and at some points relatively tightened, Lian said.
BOCOM projected China's credit growth would range between 12.5 percent and 13 percent, slightly slower year on year, with new yuan-denominated loans at 15 trillion yuan (around 2.3 trillion U.S. dollars). Newly added total social financing, a broader measure of new credit in the economy, will be 19.5 trillion yuan.
Thanks to opening up in capital markets, China will continue to see net capital inflows and a stable currency, according to the report.
"The exchange rate of the yuan will range between 6.3 percent and 6.7 percent, more stable than 2017," it said.
BOCOM also predicted the GDP growth would be 6.8 percent in 2017 and moderate to 6.7 percent this year.
"Volatility will be smaller from quarter to quarter as consumption has overtaken investment to be the major economic driver," Lian said.
Lian expects a pick-up in exports, slower investment and stable consumption this year. While CPI growth will quicken to 2 percent, PPI will retreat to around 3.5 percent. The property market will be weaker.
Lian believes the global economy, while maintaining its recovery, will still have uncertainties, which are expected to weigh on the Chinese economy.
"China still faces risks, including impact from monetary policy shifts in developed economies and U.S. trade protectionism," he said.