2010-11-25 15:06

SHANGHAI - Loan growth of around 15 percent in 2011 will be sufficient to underpin China's economic growth, a central bank adviser said on Thursday, adding to signs that lending targets will be cut next year to slow credit growth.

The comments by Xia Bin reinforced expectations that the central bank could cut loan targets in 2011 as it steps up its battle to soak excess cash from the economy and fight inflation, which rose to its highest in 25 months in October.

China is likely to lower its target for M2 money supply growth in 2011 to about 15 percent and cap new local-currency loans at about 6.5 trillion yuan, compared with this year's M2 target of 17 percent and 7.5 trillion yuan of new lending, the China Securities Journal reported on Thursday.

"If the lending target of 7.5 trillion yuan ($1.1 trillion) for 2010 is achieved, my view for next year is that a 15 percent growth will be good enough to support a steady economic expansion," Xia, an academic member of the People's Bank of China's (PBOC) monetary policy committee, told reporters.

Local-currency loans grew 19.3 percent in the year to October, official data showed, while two banking sources said China's banks have lent about 400 billion yuan in the first three weeks of November, taking them close to the government's full-year loan target of 7.5 trillion yuan.

Underlining its resolve to rein in liquidity and inflation, the central bank has raised interest rates by 25 basis points and hiked banks' reserve requirements five times this year.

The PBOC's move to increase banks' reserves by 50 basis points last week brought required reserves for big banks to a record high of 18.5 percent.

"When you have a surge in liquidity in the markets, adjusting required reserve ratios will have a faster impact than raising interest rates," Xia said.

"China's economic environment is very complicated. Apart from the required reserve ratios, different tools should also be deployed to deal with liquidity issues," he said, adding that tighter capital controls were necessary in the wake of surging global liquidity.

Deputy central bank governor Hu Xiaolian also stressed the need to deploy various tools to battle liquidity, in comments published on the PBOC's website on Wednesday.

In its open market operations this week, the PBOC actually injected a net 54 billion yuan into the financial system, which analysts said was partly to cushion the blow of the implementation of the latest reserve ratio increase, which goes into effect next week.