CHINA S money growth and bank lending slowed sharply in February as tighter monetary policy took hold and the government made headway in its campaign to tame inflation.
Chinese banks made 535.6 billion yuan (US$82 billion) in new loans in February, below market forecasts for 650 billion yuan, the central bank said yesterday.
The broad M2 measure of money supply rose 15.7 percent year on year, well shy of an expected 17 percent increase.
Excessive cash in the economy is a root cause of Chinese inflation, which has been running near its fastest in more than two years, so the slowdown in credit and money growth could lessen the need for aggressive policy tightening by authorities.
Economists said the Central Government was still likely to raise banks reserve requirements and interest rates in the near future, and keep a firm grip on loan levels throughout the year. But yesterday s data showed that its succession of tightening moves over the past half year had gained traction.
The data shows that China s policy measures are working, said Ren Xianfang, economist with IHS Global Insight in Beijing.
The central bank will be cautious in its next step, so as not to over-tighten its monetary policy as it has learnt from its policy mistakes in 2008, he said, referring to aggressive tightening then that helped tip the economy into a pronounced slowdown.
It was the second consecutive month that bank lending had fallen short of market expectations. Chinese banks issued about a quarter fewer new loans in the first two months this year than in the same period last year.
There has been a meaningful slowdown in money and credit growth, Yu Song and Helen Qiao, economists at Goldman Sachs, said.
This helped cool down aggregate demand growth from overheated levels in the fourth quarter, which clearly should be welcoming news as it reduces underlying inflationary pressures.
Since declaring in October that its top priority was to control inflation, the government has raised interest rates three times and required reserves five times, as well as ordering banks to lend less.
China s annual inflation in February topped expectations, at 4.9 percent from a year earlier, but that reading contrasted with dire warnings a few months ago of runaway prices.
Crucially, February s inflation data also showed core inflation, stripped of volatile food costs, slowed.
Economists and investors generally expect that new yuan loans in 2011 will be in the 7.0-7.5 trillion yuan range, although the government has not announced a loan target as in previous years.
(SD-Agencies)
