Analysts said the central bank is likely to raise the reserve requirement for large commercial banks again before or after the Chinese New Year, as the country faces unprecedented money supply growth due to accumulated huge lending and a recovering economy.

The People's Bank of China (PBOC), the central bank, Thursday released financial data for January which showed that front-loaded new bank loans amounted to 1.39 trillion yuan (US$203.51 billion).

New lending in January was 230 billion yuan (US$33.67 billion), down 14 percent from a year earlier due to the central bank's braking, which included raising the reserve requirement ratio for large commercial banks by 0.5 percentage points.

New lending in January totaled roughly 18 percent of the 7.5 trillion yuan (US$1.1 trillion) expected to be loaned during the whole year.

"The new bank loans were lower than the market expectation of about 1.5 or even 1.6 trillion yuan (US$219.62 billion to US$234.26 billion)," said Lu Zhengwei, chief economist of Industrial Bank.

New loans to individuals grew faster than new lending to businesses, as loans to individuals usually involve smaller default risks and lower costs.

Business loans also decreased because the central government recently ordered banks to curb lending to industries facing overcapacity, a report released Thursday by Industrial Bank said.

New loans to business accounted for 67.7 percent of the new lending, much lower than the 90.8 percent growth in the first quarter of 2009, the bank's report said. The money supply including the currency circulated plus the checking account in January grew 38.96 percent year-on-year, according to the central bank.

"The growth of the money supply is unprecedented, even exceeding the 34.6 percent hike in November last year," Lu said.

The growth was mainly due to the recovering economy, as companies started to spend money to buy raw materials for more business activities, which contributed to the increased money in circulation, Lu said.

The growth of the money supply has put the central bank on high alert against inflation, Lu said, and it is likely the reserve requirement ratio will be hiked by another 0.5 percentages points to 16.5 percent for large commercial banks, though small banks would be exempt.

That would effectively sequester 300-400 billion yuan (US$43.92-US$58.57 billion) from the market, Lu said.

(Global Times February 12, 2010)