China has no immediate plan to raise borrowing costs and will study the impact of its previous interest rate hike before deciding whether to tighten credit further, the central bank chief said yesterday.

 

On April 28, the People's Bank of China (PBC) raised lending rates for the first time since October 2004, boosting the one-year benchmark rate by 27 base points to 5.85 percent, as part of efforts to curb the overheating in some sectors such as real estate.

 

"We are still monitoring the results of the last interest rate increase, and there won't be any further measures right away," Zhou Xiaochuan, the central bank governor, told reporters on the sidelines of a banking conference yesterday.

 

"As there is always a time lag in monetary policy, we cannot expect an immediate impact from any move we make," Zhou added. "We have to be patient."

 

Many domestic researchers believe the bank will announce further tightening moves, either more interest rate hikes or an increase in banks' required reserve ratios, to dampen a rapid rise in money supply that is feeding credit growth.

 

M2, the broadest measure of money supply, grew at an unexpectedly faster pace in April, rising 18.9 percent from a year earlier.

 

New yuan loans in the first four months of the year totalled 1.58 trillion yuan (US$197.5 billion), almost two-thirds of the central bank's target for the full year.

 

That raised fears of inflation and that debt-laden banks could end up saddled with more bad loans.

 

"The brisk growth in lending, in particular, should raise concern, especially as to where the huge amount of lending ended up," said Zhuang Jian, an economist with Asian Development Bank's Resident Mission in China.

 

If too much of the money went into the property market, it could be a major problem, the economist said.

 

"Before making any policy adjustment, we should first be clear whether soaring lending is a long-term trend or a short-term fluctuation," Wang Yuanhong, an economist with the State Information Centre, told China Daily.

 

Large-scale projects and infrastructure construction during the current 11th Five-Year Plan (2006-10) could have contributed to the rising loans, Wang explained.

 

"Besides, banks, which are eager to meet their business targets for this year, are also lending more," he added.

 

(China Daily June 7, 2006)