China’s lending and money supply grew by less than economists expected last month, aiding the government’s campaign to rein in prices in the world’s fastest-growing major economy.
Banks extended 535.6 billion yuan (US$81.5 billion) in new loans last month, compared with the 600 billion yuan median estimate in a Bloomberg News survey of 19 economists. M2, the broadest measure of money supply, climbed 15.7 percent compared with the median forecast of 17 percent.
“The central bank’s tightening is starting to bite,” said Yao Wei, a Hong Kong-based economist at Societe General SA.
While the central bank may ease the pace of increases in reserve ratios, interest rates may rise as early as this week to curb inflation that’s “well above the comfort zone,” Yao said.
New loans last month compared with 700 billion yuan a year earlier and 1.04 trillion yuan in January. M2 expanded at the slowest pace since November 2008 and compared with a 17.2 percent increase in January.
New loans in the first two months of the year declined to 1.58 trillion yuan from 2.09 trillion in the same period last year.
The government didn’t set a formal target for new loans this year, although China Banking Regulatory Commission Chairman Liu Mingkang (劉明康) said the amount would be “about equal” to last year’s 7.5 trillion yuan, the China Business News reported on Monday last week/
Monetary tightening has already had some impact on the operations of the nation’s commercial banks, China Minsheng Banking Corp (民生銀行) chairman Dong Wenbiao (董文標) said on March 3. Two days later, he said loan demand from property developers had declined sharply and mortgage loans had almost stopped since September.
“China’s quantitative tightening is working,” said Qu Hongbin (屈宏斌), China economist with HSBC Holdings PLC in Hong Kong. “Combined with supply-side measures aiming at cooling food price inflation and mitigating the impact of oil prices, this implies that inflation is likely to peter out by the middle of the year.”
The government may delay further tightening measures, including an increase in borrowing costs, because of “uncertainty” caused by the earthquake in Japan last week, Bank of America-Merrill Lynch economists led by Ting Lu (陸挺) said in a report yesterday.
Morgan Stanley and JPMorgan Chase & Co expect the central bank to continue raising interest rates and reserve ratio requirements.
Wang Qing (王慶), chief China economist at Morgan Stanley in Hong Kong, predicted an increase in lending and deposit rates in May or June as inflation exceeds 5.5 percent.
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