Money supply and bank loans slow
Data raises hopes that inflation can be controlled without further monetary tightening
Beijing can claim initial success in its battle to cool the economy as data unveiled yesterday showed moderate slowdowns in new money supply and bank loans.
With economists blaming an abundance of money for pushing inflation to an almost 12-year high, the latest figures raise hopes that upward spiralling prices can be brought under control without further monetary tightening.
'The marked drop in money supply and credit growth in the first quarter shows that the results of monetary tightening are clear and the financial system is balanced,' the People's Bank of China said in a statement on its website.
The central bank said growth in the broad M2 measure of money supply decelerated to 16.3 per cent last month from March last year, down from 17.5 per cent in February and 18.9 per cent in January.
Credit expansion dropped from 17.1 per cent in February to 16.2 per cent last month compared with a year earlier, with commercial banks' balance sheets showing 283 billion yuan (HK$314.58 billion) worth of local currency loans.
On Thursday, Jiang Dingzhi, a vice-chairman of the China Banking Regulatory Commission, praised lenders for keeping to the central bank's tight monetary policy, saying that last month's loan growth was acceptable.
'Given the banks' propensity to lend - as it makes them money - and the traditional difficulty the PBOC has had in controlling credit, all credit goes to them,' Standard Chartered Bank's chief China economist Stephen Green said.
However, with total loans in the first quarter hitting the 1.33 trillion yuan mark - about 37 per cent of the assumed annual loan quota of 3.6 trillion yuan - other analysts said it was too early to conclude that banks' credit quotas would hold.
'The deceleration in March loan growth may reverse significantly in April when banks begin to utilise their second-quarter loan quotas again, likely in a frontloaded fashion,' said Goldman Sachs economist Song Yu in a research note.
Mainland banks lent a record 803.6 billion yuan in January.
With retail sales growing at their fastest pace since 1996 and the consumer price index hitting 8.7 per cent in February, inflation remains the chief concern for policymakers, who fear spiralling food and commodity prices may lead to civil unrest.
International Monetary Fund head Dominique Strauss-Kahn said yesterday that the threat from rising food prices was as serious for the global economy as the financial market crisis, following demonstrations in several countries over soaring prices of staples.
'Given the persistently elevated inflationary pressures and the undiminished willingness and capability of banks to lend, we expect the central bank to keep a tight leash on credit growth,' Mr Song said.
The central bank recently signalled a tougher stance against accelerating inflation, saying it would curb price rises using further credit tightening and the yuan's exchange rate - which broke the psychological barrier of 7 yuan to the US dollar this week.
But Mr Green said that any drop in the consumer price index for last month, which is due to be released on April 17, could stimulate a resurgence in credit growth.
'If March CPI is 8.3 per cent year on year ... the central bank will come under a lot more pressure to relax the quota and local banks will come under pressure to boost lending from local officials, who are betting that the inflation fight is over,' he said.
