Lending cools on policy moves

16:47, April 13, 2010      

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China's policy measures to prevent overheating achieved initial success in March, as the country's new lending slowed.

Analysts expected further efforts, including interest rate hikes, to rein in the country's lending spree and manage inflation expectations.

China extended 510.7 billion yuan ($74.8 billion) in new yuan-denominated loans last month, a 1.38 trillion yuan ($202.19 billion), or 0.27 percent, decline year-on-year, the People's Bank of China (PBOC) said yesterday in a quarterly financial statistics report.

Year-on-year growth in China's broad money supply (M2) slowed to 22.5 percent in March from the 25.5 percent seen in February.

New yuan-denominated lending in the first quarter hit 2.6 trillion yuan ($380.99 billion), accounting for 34.67 percent of the country's credit target in 2010.

"The efforts of the central bank and the banking regulator to rein in liquidity have obviously worked," said Wang Tao, head of China Economic Research with USSecurities.

"And the urgency for the central government to intensify tightening policies in the short run has been mitigated," she added.

Wang expected more cooling policies including further bill issuances, an increase in the reserve requirement ratio, a hike in interest rates and appreciation of the yuan.

"To better manage rising inflationary pressures, it's likely the government will raise interest rates two or three times starting from the second quarter," Wang said.

The government has set a lending target of 7.5 trillion yuan ($1.1 trillion) in full-year new loans in 2010 to curb overheating as well as bolster China's economic recovery.

The country's new lending doubled last year to reach 9.6 trillion yuan ($1.41 trillion).

The central bank raised the reserve requirement ratio for large commercial banks twice in the first quarter of 2010, hiking it by 0.5 percentage points each time to tighten liquidity and credit conditions.

It urged banks to pace loan growth and drained cash from the banking system through issuing bills.

The PBOC issued 75 billion yuan ($10.98 billion) in treasury bills April 1 with a 3-month maturity period. The bank also issued 15 billion yuan ($2.2 billion) in 3-year bills April 8 for the first time since 2008.

Lu Ting, an economist at Bank of America-Merrill Lynch in Hong Kong, said new loans in the first quarter were in line with his expectations.

Lu expected only one asymmetric rate hike in 2010 in the second half of the year, with the 1-year lending rate up 18 basis points and the 1-year deposit rate up 27 basis points.

Source: Global Times

(Editor:黄硕)

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