China’s new loans rose more than estimated in June and money supply growth rebounded even after the central bank raised interest rates and reserve requirements to cool credit growth that’s fueling inflation.
New loans were 633.9 billion yuan ($98 billion), compared with the 622.5 billion yuan median estimate in a Bloomberg News survey and 551.6 billion yuan in May. M2, the broadest measure of money supply, rose 15.9 percent, the People’s Bank of China said on its website. Foreign-exchange reserves, the world’s largest, rose to $3.2 trillion at the end of June from $3.04 trillion at the end of March.
The central bank last week raised interest rates for the third time this year ahead of a report that showed consumer prices jumped the most in three years, indicating the government’s priority is still fighting inflation. Premier Wen Jiabao may be reluctant to ease monetary policy even amid slowing growth as state planners forecast “elevated” price levels for the rest of the year.
“Monetary policy is not in a position to loosen yet given elevated inflationary pressures and still stable domestic demand,” Chang Jian, a Hong Kong-based economist at Barclays Capital said before the data. “Credit controls should remain in place and special support needs to be given to smaller companies and vulnerable sectors that have been disproportionately affected by the credit tightening.”
Inflation Accelerates
The world’s second-biggest economy probably grew the least in almost two years last quarter as manufacturing slowed after the government curbed loans and property development. Gross domestic product rose 9.3 percent from a year ago, according to the median estimate in a Bloomberg survey of 18 economists, down from 9.7 percent the previous quarter.
Inflation accelerated to 6.4 percent in June from a year earlier, driven by a 57 percent gain in pork prices, the government said in a July 9 report.
Barclays Capital’s Chang estimates the PBOC will raise interest rates again in the third quarter, the sixth increase since it started in mid-October. Economists at Nomura Holdings Inc. also forecast a move in the third quarter along with another 100 basis-point increase in banks’ reserve requirements, taking the total for the biggest banks to 22.5 percent.
Nomura last week raised its 2011 inflation forecast to 5.2 percent from 4.9 percent to reflect the recent surge in pork prices while UOB Kay Hian Holdings Ltd. revised its estimate to 5.4 percent from 4.8 percent in a report yesterday.
“Policies aimed at controlling overall liquidity will remain unchanged but there will be selective easing of financing policies for priority areas” in the second half, said Tim Condon, the Singapore-based head of Asia research at ING Groep NV, before today’s data release. Smaller companies, the auto industry and local government financing vehicles may get more support, he said.
