OREANDA-NEWS. March 15, 2013. China's new yuan-denominated lending shrank in February, dragged down by the holiday factor and a tightened credit line that was strained in January.
 
The People's Bank of China (PBOC), the country's central bank, announced that new yuan-denominated loans stood at 620 billion yuan (99.52 billion U.S. dollars) last month, down 90.7 billion yuan year on year.
 
The figure was much lower than that of January and fell short of market expectations that projected such loans would range from 750 billion yuan to 780 billion yuan.
 
Lian Ping, chief economist with the Bank of Communications, attributed the decline to multiple factors, citing fewer work days in February and inadequate deposits in some banks.
 
In addition, lending project potential leftover from last year was fully tapped in January, which also contributed to the huge gap between January and February, Lian said.
 
The country's banks were all engaged in lending in January, boosting yuan-denominated lending to 1.07 trillion yuan, data from the central bank show.
 
Lian forecast that new yuan-denominated lending would increase in March, as lending demand from enterprises and deposits in banks have both gathered steam amid the country's mild economic recovery.
 
New loans in foreign currencies stood at 114.9 billion yuan, up 62.3 billion yuan year on year, the PBOC said in an online statement.
 
It said the country's social financing, a measure of funds raised by entities in the real economy, amounted to 1.07 trillion yuan in February, up 22.8 billion yuan from the same period last year.
 
By the end of February, the broad measure of money supply (M2), which covers cash in circulation and all deposits, increased 15.2 percent year on year to 99.86 trillion yuan, the statement said.
 
The increase was down 0.7 percentage point month on month, but 2.2 percentage points higher year on year.
 
Meanwhile, the narrow measure of money supply (M1), which covers cash in circulation plus current corporate deposits, jumped 9.5 percent year on year to 29.61 trillion yuan, but the growth rate was 5.8 percentage points lower month on month.
 
The outstanding amount of cash in circulation (M0) amounted to 6.03 trillion yuan in February, up 17.2 percent from one year earlier.
 
Last month, the net amount of cash withdrawn from circulation stood at 213.6 billion yuan.
 
Zong Liang, an economist with Bank of China, said he believes the government will tighten the monetary policy to withdraw money from the market, as the yuan is still facing appreciation pressure and liquidity remains loose.
 
The central bank recently adopted a series of repurchase agreement operations to drain liquidity. Analysts believe this indicates that such open market operations will be the major method in this year, in contrast with the previous practice that relied on interest rate adjustments.
 
Monetary policies should be appropriately tightened to check inflation, Peter Fung, global chair of KPMG Global China Practice, told Xinhua on Sunday.
 
"Bank lending should be controlled in growth scale and public market operations should be launched to withdraw currencies in a bid to curb excess fluidity in the market," Fung said.
 
The country's consumer inflation rebounded to a 10-month high of 3.2 percent in February.
 
In the government work report delivered on March 5, Premier Wen Jiabao said China aims to hold this year's consumer price growth at around 3.5 percent, lower than the 4-percent target for 2012 but higher than last year's actual inflation rate of 2.6 percent.
 
The government will lower the M2 growth forecast to about 13 percent in 2013, lower than the 13.8 percent in 2012 and the lowest since 2009, when the government began specifying M2 growth figures in government work reports.