New loans weaker than expected

New loans advanced by banks on the mainland came in weaker than expected last month, suggesting a need for more effective stimulus policies to revive lacklustre demand in the economy, analysts say.

Banks extended 540.1 billion yuan (HK$661.87 billion) in local-currency new loans in July, up 48.5 billion yuan on the same month last year, the People's Bank of China said yesterday.

That put new lending at its lowest monthly level since October, and remarkably lower than the 650 billion yuan to 700 billion yuan widely predicted by economists - indicating monetary easing efforts since late last year have so far not borne fruit.

'Bank loans have not effectively helped counter the economic slowdown,' HSBC economist Qu Hongbin said. 'In order to achieve Beijing's target of stabilising growth, the central bank has to further cut interest rates and the required reserve ratio.

'A reduction in the reserve ratio could be possibly announced as early as this weekend.'

M2, a broad measure of money supply, was up 13.9 per cent from a year ago at the end of last month. The growth was 0.3 percentage points higher than in June, but still slightly slower than PBOC's 14 per cent annual growth target.

Social financing totalled 1.04 trillion yuan last month. Social financing is a liquidity gauge that includes bank loans, corporate bonds and stock issuance.