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Bank lending surges 45 percent in June

By Wang Xinyuan (Global Times)

08:41, July 13, 2012

China's total bank lending reached 919.8 billion yuan ($144 billion) in June, central bank data showed Thursday, a three-month high following the government's recent easing of monetary policy to reverse the economic slowdown. But economists said the moves may lead to a rebound in inflation later this year or early next year.

Bank lending in June, up 45.1 percent from a year earlier, is higher than market expectations of about 880 billion yuan, Zhang Zhiwei, chief China economist at Nomura Securities, told the Global Times.

"This confirms the policy easing is indeed on its way, reinforcing our view that growth will bottom out in the second quarter and rebound in the second half of this year," he said.

The People's Bank of China (PBC) cut the benchmark interest rates for the second time on July 5 in less than a month, making loans more affordable to businesses, in the hope to bolster the world's second largest economy.

The strong lending contributed to a faster growth of money supply, which accelerated in June to 13.6 percent compared with the same period last year, from a 13.2 percent year-on-year growth in May, according to the central bank.

"We expect new loans to remain at a high level in the coming months," Zhang said, adding that it may add inflationary pressure in the fourth quarter or early next year. He forecast that there will be no more interest rate cuts this year.

China's consumer price index, a major indicator of inflation, rose to 2.2 percent in June from a year earlier, slowing down from May's 3 percent rise, according to the National Bureau of Statistics. The relatively low growth of prices temporarily left more room for easing monetary policy.

Zhang estimated that there will be more cuts in the reserve requirement ratio (RRR) so that the banks can raise credit volume.

Yuan deposits also surged in June to 2.86 trillion yuan, up 17.4 percent year-on-year, according to data from the central bank.

"It also confirms our view that RRR cuts are necessary, given that a surge of deposits implies obligation to set aside more funds with the PBC under the reserve requirements," Dariusz Kowalczyk, senior economist and strategist with Credit Agricole CIB in Hong Kong, told the Global Times in an e-mail Thursday.


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