Customers choose tomatoes at a supermarket in Beijing. Analysts said that the faster-than-expected growth in money supply and lending may aggravate the country's already high inflationary pressure and prompt policymakers to adopt more monetary-tightening measures. [Photo / China Daily]

Growth in money supply, lending deepens concerns over rising prices

BEIJING - China's bank lending and money supply accelerated at a faster-than-expected pace in March. That's exacerbating policymakers' concerns about excess liquidity in the world's second-largest economy, where inflation is expected to accelerate at its fastest pace since 2008.

New yuan-denominated loans stood at 679.4 billion yuan ($104 billion) in March, while the country's broad money supply (M2) rose 16.6 percent from a year earlier to reach 75.8 trillion yuan. The figure exceeds the whole-year target of 16 percent set by the People's Bank of China (PBOC) at the beginning of this year, a statement on the central bank's website showed on Thursday.

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Analysts said that the faster-than-expected growth in money supply and lending may aggravate the country's already high inflationary pressure and prompt policymakers to adopt more monetary-tightening measures. Tackling inflation has become the biggest economic priority for the Chinese government.

The nation's total bank loans rose to 52.61 trillion yuan by the end of March, a increase of 17.6 percent year-on-year, while new yuan-denominated loans in the first quarter reached 2.24 trillion yuan, according to the central bank's statement.

Sheng Songcheng, head of the statistics department at the PBOC, said on Thursday that China's inflation rate is likely to be more than 5 percent in March, and that "prudent" monetary policies will not be eased over the coming months.

Sheng's comments came the day before the release of the country's first-quarter economic data and inflation figures for March, and there is speculation that China will again raise the required reserve ratios for lenders to absorb excess liquidity.

"The latest numbers reflect the fact that China is still facing with daunting inflationary pressure, although the central bank has achieved some success in controlling loan growth," said Zhuang Jian, a senior economist with the Asian Development Bank.

Zhuang said the accelerated bank lending is likely to lift consumer prices to a higher-than-expected level.

According to economists' forecasts, China's Consumer Price Index in March is likely to jump to 5.2 percent or 5.3 percent, higher than November's 28-month peak of 5.1 percent.

"Formal and informal loans have substantially raised liquidity in the Chinese capital markets, overtaking food prices to become the major driver of inflation," said Qu Hongbin, chief China economist at HSBC Holdings in Hong Kong.

Qu predicted another increase in the reserve requirement ratios for banks and one further hike in interest rates during the first half of the year.

The central bank on Thursday also made public for the first time an index of financing across the various sectors of society. The figure for the first quarter was 4.19 trillion yuan higher than that a year earlier.

It was the first time that the PBOC had used the indicator to monitor liquidity in financial markets. Apart from bank loans, the financing gauge also takes into account money raised by corporate bonds, shares issued by companies outside the financial industry, and insurance company compensations.

The aggregate new figure is better able to measure the total of funds raised, said Xu Hongcai, an economist from the government-backed think tank China Center for International Economic Exchanges.

On Wednesday, Premier Wen Jiabao told an executive meeting of the State Council that the funds raised, excluding those from the financial industry, should be managed within a "reasonable range" by controlling money supply and adjustments to required reserve ratios and interest rates.

The Chinese authorities, who believe the concept of "social finance" is closely related to consumer prices, are expected to use the indicator as an important reference point for the development of monetary policies to tame inflation.