New loans at near two-year low

PUBLISHED : Saturday, 15 October, 2011, 12:00am
UPDATED : Saturday, 15 October, 2011, 12:00am

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Mainland banks last month extended the lowest number of new loans in almost two years as Beijing continued to tighten credit in a bid to rein in inflation.

New local currency loans amounted to 470 billion yuan (HK$571.56 billion), the lowest in 21 months, compared with 549 billion yuan advanced in August, the People's Bank of China (PBOC) said.

Outstanding loan growth eased to 16.1 per cent year on year from 16.4 per cent in August, the lowest reading since November 2008.

M2, a broad measure of money supply, decelerated in September as well, growing at 13 per cent year on year, the slowest pace in a decade.

But the credit slowdown - the result of Beijing's tightening measures this year - is unlikely to herald a broad-based monetary easing in the near future as September inflation remained high at 6.1 per cent, say economists.

'The sharper-than-expected money supply deceleration was primarily driven by slower deposit growth and slower, or even reverse, speculative money inflows,' said Qu Hongbin, an HSBC economist. 'This does not mean monetary policy is too tight because sequential M2 growth remained steady and loan growth remained supportive of economic growth above 8 per cent.'

Seasonally adjusted, M2 rose 1.1 per cent from August and new loans grew 1.3 per cent month on month, according to Qu's calculation.

The central bank also said foreign reserves increased by US$4.2 billion over the third quarter to US$3.2 trillion, the smallest gain since the third quarter of 2000.

Zhang Zhiwei, an economist at Nomura Securities, said the 'surprisingly low growth' in foreign exchange reserves was partly due to valuation factors as the euro has been dropping. 'The changing valuation of currencies is only a temporary factor and can't last long if the situation in the euro-zone countries improves,' Zhang said.

The PBOC has raised interest rates five times and increased lenders' reserve requirements nine times in a year to rein in inflation. Consumer prices have climbed by more than the government's target for this year of about 4 per cent a month.

Ma Jun, an economist at Deutsche Bank Hong Kong, said the outlook for monetary policy is that it will not be relaxed in the near future.

'Although the September inflation rates have declined, a consumer price index reading of above 6 per cent is still well above the government's tolerance level, and the modest slowdown in fixed-asset investment and industrial production so far is still viewed as desirable,' Ma said.

'It will take some significantly worse economic data points, including sharper declines in export growth, property sales, property prices and commodities prices, to convince the government to ease macro policy in a meaningful way.'