Economic Observer Online
By Kang Yi (康怡)
Sept 12, 2012
Translated by Zhu Na
Original article: [Chinese]
According to data released by the People's Bank of China yesterday, by the end of Aug 2012, the balance of yuan-denominated loans on the books of China's banks had increased by 16.1 percent compared to the same period last year, a 0.1 percentage point increase on the rate of growth in July.
Yuan-denominated loans increased by 704 billion yuan in August about 164 billion yuan more than in July and about 156 billion yuan more than in August 2011.
The financial research center at the Bank of Communication noted that real estate trading volumes had picked up which had helped lift demand for personal loans and that the continued increase in infrastructure investment had also contributed to an increase in corporate loans. Researchers also noted that there are typically more new loans issued in August than in July.
Regarding future possible monetary policy moves, E Yongjian (鄂永健), a researcher with the Bank of Communications, said, that monetary policy is likely to maintain prudent, though minor adjustments, such as reasonable increases in liquidity and an interest rate cut are possible. As industrial value-added and fixed-asset investment both continued to decline in August, this indicates that the economy is still in a downturn and an small uptick in the inflation figure shows that inflation can't be ignored.
In terms of interest rates, Mr. E thinks that there is little likelihood of deposit interest rates being lowered given that the CPI is expected to increase at an annualized average rate of about 2.8 percent and also given the possibility a new round of price increases next year. In addition, any further lowering of interest rates could also stimulate the real estate market, which would risk of accelerating house price increase.
Lowering the benchmark interest rate, and thus narrowing the spread between Chinese and foreign rates, might also lead to greater capital outflows, which is not good for domestic financial stability.
But from the point of view of reducing the costs of financing for enterprises, these is an argument for a further lowering of interest rates.
Overall, there is possibility that interest rates could be cut but there won't be a sharp reduction.
Links and Sources
People's Bank of China: 2012年8月社会融资规模统计数据报告