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February 10, 2010

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New credit to slow and inflation to be watched

ECONOMISTS expect new loans granted in January in China to be about 1.35 trillion yuan (US$198 billion) and predict lending will slow in the following months.

People's Bank of China Governor Zhou Xiaochuan said yesterday that the pace of bank lending in China is stable and the government needs to monitor inflation.

"We expect January new credit to be between 1.3 trillion and 1.4 trillion yuan in January," said Lu Zhengwei, an Industrial Bank senior economist.

"The amount still can be viewed as normal and under control."

New bank lending is estimated at 1.38 trillion yuan in January, according to Bloomberg News in a survey of 16 economists. The official monetary data will be posted this week, as early as today.

If 1.35 trillion yuan were issued in January, it would account for 18 percent of China's target of 7.5 trillion yuan in new credit for this year.

"January is a traditional month for banks to front load credit. Besides, in early January, banks extended loans heavily as they still assume a monetary environment as loose as last year, making them bold to lend," Lu said.

Banks are set to slow their lending as the central bank tightened its monetary policy on a surging rise in loans in the first two weeks of January, including raising yields on various bills and increasing the reserve requirement ratio.

"Money growth will settle into a lower trend in coming months," said Alaistair Chan, an associate economist of Moody's "With a target of 7.5 trillion yuan for new lending this year, the amount of lending and the government's reaction will be closely followed."

Zhou also said in Sydney yesterday that the PBOC needs to closely watch the inflation rate, which has started to rise.


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