China's lending fell in May and money supply grew at its slowest pace since November 2008 with fresh economic data indicating that tightening was cooling economic growth.
Banks extended 551.6 billion yuan (US$84.9 billion) in new yuan-backed loans in May, 100.5 billion yuan less than a year ago, the People's Bank of China said.
In April, new yuan loans totalled 739.6 billion yuan.
M2, the broadest measure of money supply, increased 15.1 percent in May from a year ago, a drop of 5.9 percentage points. In April it was 15.3 percent and in March 16.6 percent.
China targets a whole-year M2 growth of under 16 percent.
Economists said the monetary data indicated that China's economy was heading for a soft landing.
"China's May new lending surprised on the downside, evidence of still very tight credit availability," said Chang Jian, a Barclays Capital economist.
New yuan loans totalled 3.6 trillion yuan in the first five months, down 12 percent from the same period of last year.
Policymakers are again facing a dilemma - to tighten, to loosen or to pause - when they try to balance growth and inflation risks after a period of aggressive tightening, Chang said.
The central bank has tightened its monetary policy since October 2010 with strict credit controls, four benchmark interest rate increases and eight reserve requirement ratio rises. Credit availability weakened and the cost of capital has risen as a result.
"While we continue to look for one more interest rate hike in June and believe it is too early to loosen, there is a risk that it could be pushed back to early July," Chang said.
He believes there will be one more interest rate increase to push up one-year benchmark deposit rates to 3.5 percent. The one-year benchmark deposit rate sits at 3.25 percent at present, still lagging inflation.
Qu Hongbin, chief economist of HSBC in China, said he expects more tightening to follow despite economic data pointing to a soft-landing.
"With growth not a concern, the PBoC should continue to focus on fighting inflation and rate hikes and reserve requirement ratio hikes are still in PBoC's toolkit," he said.
China has made fighting inflation its priority this year, with a target of keeping the consumer price index under 4 percent for the whole year.
China is due to announce its consumer price index today.
Economists are expecting May inflation to rise 5.4 percent. It rose 5.3 percent in April.
Barclays Capital has cut its forecast for China's economic growth to 8.7 percent from 9 percent for 2012 due to more persistent inflation risks than expected. Barclays is maintaining its projection of 9.3 percent growth for 2011.
Weekly review
Banks extended 551.6 billion yuan (US$84.9 billion) in new yuan-backed loans in May, 100.5 billion yuan less than a year ago, the People's Bank of China said.
In April, new yuan loans totalled 739.6 billion yuan.
M2, the broadest measure of money supply, increased 15.1 percent in May from a year ago, a drop of 5.9 percentage points. In April it was 15.3 percent and in March 16.6 percent.
China targets a whole-year M2 growth of under 16 percent.
Economists said the monetary data indicated that China's economy was heading for a soft landing.
"China's May new lending surprised on the downside, evidence of still very tight credit availability," said Chang Jian, a Barclays Capital economist.
New yuan loans totalled 3.6 trillion yuan in the first five months, down 12 percent from the same period of last year.
Policymakers are again facing a dilemma - to tighten, to loosen or to pause - when they try to balance growth and inflation risks after a period of aggressive tightening, Chang said.
The central bank has tightened its monetary policy since October 2010 with strict credit controls, four benchmark interest rate increases and eight reserve requirement ratio rises. Credit availability weakened and the cost of capital has risen as a result.
"While we continue to look for one more interest rate hike in June and believe it is too early to loosen, there is a risk that it could be pushed back to early July," Chang said.
He believes there will be one more interest rate increase to push up one-year benchmark deposit rates to 3.5 percent. The one-year benchmark deposit rate sits at 3.25 percent at present, still lagging inflation.
Qu Hongbin, chief economist of HSBC in China, said he expects more tightening to follow despite economic data pointing to a soft-landing.
"With growth not a concern, the PBoC should continue to focus on fighting inflation and rate hikes and reserve requirement ratio hikes are still in PBoC's toolkit," he said.
China has made fighting inflation its priority this year, with a target of keeping the consumer price index under 4 percent for the whole year.
China is due to announce its consumer price index today.
Economists are expecting May inflation to rise 5.4 percent. It rose 5.3 percent in April.
Barclays Capital has cut its forecast for China's economic growth to 8.7 percent from 9 percent for 2012 due to more persistent inflation risks than expected. Barclays is maintaining its projection of 9.3 percent growth for 2011.
Weekly review
