Effect of monetary policy stronger than expected

16:40, March 04, 2011      

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According to a report released by China Securities Journal on Friday, Chinese banks granted much fewer credits in February than they did in January, showing the evident effect of the increasingly tightened monetary policy since the second half of last year.

According to the newspaper, new loans from banks were no more than 600 billion yuan, which was much lower than what had been expected by the market and only a bit more than half of the 1 trillion yuan new loans reported in January.

That, analysts believe, is the evidence that the tightening policies, including the raising of banks’ minimum deposit-reserve ratio, interest rate hikes and the implementation of differentiated deposit reserves for banks, are working well.

Sheng Hongqing, an analyst at Everbright Bank, thinks that the Spring Festival holiday and banks’ control on their credit supply underlie the drastic slump of new loans in February.

Small and medium-sized urban commercial banks are particularly under the liquidity pressure as they face higher deposit-reserve ratios. Some even had to sell bond assets to fund the capital needed for the reserve requirement.

In addition, banks began to slash housing mortgage business in February in the context of the current stringent macro-control policy, which aims to curb the rising housing prices and speculative investment on the property market.

Since October 2010, the People's Bank of China, the central bank, has raised banks' deposit-reserve ratio five times and interest rates three times. The central government has also adopted an array of measures to cool down the overheating property market.

Chinese Premier Wen Jiabao has announced recently that the target for national economic growth is set at 7 percent annually during the 12th Five-Year Plan (2011-2015). That is a significant slowdown from the minimum 8 percent growth that was the standard for the past ten years.

However, the central bank has not specified the cap for this year's new credit. In 2010, banks made 7.95 trillion yuan of new loans, exceeding the 7.5 trillion yuan ceiling.

By Li Jia, People’s Daily Online


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