CHINA’S 10-month campaign to relax monetary policy is showing signs of an impact as financial conditions ease, a shift that could help stabilize the nation’s growth rate.

    Bloomberg’s China Monetary Conditions Index, a gauge that includes inflation-adjusted interest rates and the exchange rate, improved for a second month in August — the first back-to-back gain since 2013. Episodes of improvement in the past have tended to presage either an acceleration or a stabilization in economic growth.

    The economy is muddling through a slump in exports and a downturn in investment growth thanks to an overhang of debt. The best bet for a pick-up may be continued gains in consumer spending, along with a turnaround in public projects — and that’s where financing conditions come in.

    “As monetary policy has been loosened, there has already been a sizable turnaround in credit growth that should feed into stronger economic growth over the months ahead,” said Mark Williams, chief Asia economist for Capital Economics Ltd. in London. “We’ll certainly see that in the monthly data in the fourth quarter.”

    Premier Li Keqiang has responded to the economy’s slowdown with policy easing measures including five interest rate cuts since November, reductions in the amount of deposits banks must hold as reserves, a surprise currency devaluation last month and increased fiscal support.

    The HSBC China Monetary Conditions Indicator also rose to a six-month high in August, after stalling in July. The Bloomberg and HSBC gauges are designed to give a sense of how monetary conditions evolve over time, with higher values indicating looser monetary conditions and lower values signaling tightening.

    “We expect more policy easing to generate a modest growth rebound” in the second half, economists led by Hong Kong-based Qu Hongbin, chief economist for greater China at HSBC Holdings Plc., wrote in a note this month.(SD-Agencies)