Chian's rising consumer inflation, driven by higher food prices, will not obstruct the monetary authority’s efforts to counter economic sluggishness, as companies still need credit and adaptive liquidity to sustain investment, analysts said.

Economists predicted that the consumer price index (CPI), the main gauge of inflation, will drop gradually next year after peaking in January as the government takes measures to tame the high price of pork through increased supply. Thus, monetary policy will focus on stabilizing growth and preventing a cre­dit crunch.

Banks in China issued yuan-denominated new loans of 1.39 trillion yuan ($197.5 billion) last month, an increase of 138.7 billion yuan from a year earlier, the People’s Bank of China (PBoC) – the central bank – said on Tuesday.

The faster-than-expected growth of bank lending was mainly due to the accelerated expansion of corporate and long-term household debt, said Huatai Securities chief economist Li Chao. “It indicated strong credit demand from companies and individuals, and the central bank is keen on expanding credit to support growth.”

Total social financing, a broader measure of credit to the real economy that also includes financing through non-banking institutions and local government special bonds, rose by 1.75 trillion yuan last month. The amount reached 221.28 trillion yuan by the end of last month, up 10.7 per cent from a year earlier, the central bank said.

Li expected the year-on-year growth rate of total social financing will hit a peak of 11.5 per cent in the first quarter of next year, and the central bank is likely to further cut the reserve requirement ratio to maintain sufficient liquidity in the financial system.

So far this year, China has maintained a relatively cautious monetary policy, even as most major central banks returned to unconventional monetary policies featuring subzero interest rates and quantitative easing.

The PBoC on Wednesday said it will push forward the newly introduced loan prime rate reform, aiming to improve the monetary policy transmission mechanism. Financial institutions are encouraged to use the loan prime rate as a benchmark to set loan prices and reduce corporate financing costs.

Rising pork prices

Surging pork prices have boosted the headline CPI to 4.5 per cent last month, the year’s highest level. But the core CPI, which excludes food and energy prices, was only 1.4 per cent as some economists calculated. Therefore relatively high consumer inflation may not affect PBoC policymaking too heavily.

The China Merchandise Reserve Management Centre on Tuesday said 40,000 metric tonnes of frozen pork reserves will be released into the market – the fourth such move and the largest amount since September – to tame pork prices.

China’s monetary policy is expected to remain stable next year, and additional liquidity injection is necessary in the coming months, the Goldman Sachs Investment Strategy Group said.

The central bank may take advantage of targeted reserve requirement ratio cuts and some other tools to facilitate financing of private, small and micro enterprises, said Wang Shengzu, co-head of Goldman Sachs’ Investment Strategy Group Asia.

The PBoC’s US peer, the Federal Reserve (Fed), is expected to not make any moves in the near term.

The Fed may be make no further rate reductions in the first half of next year if gross domestic product (GDP) growth trends around 1.8 per cent or the unemployment rate is stable or lower, Wang said.

Without the aggressive monetary easing, Wang’s team predicted that China’s GDP growth can be stabilised within a possible range between 5.7 per cent and 6.3 per cent next year.

Although the uncertainties of Sino-US trade tensions will cast a shadow over the country’s growth prospects, the government was firm in choosing not to adopt a deluge of strong stimulus policies, and thus the supportive policies will be moderate, the team said.

However, growth of the M2 money supply slowed slightly to 8.2 per cent by last month’s end, down from 8.4 per cent in October, the PBoC said on Tuesday.

Market observers said this indicates the central bank’s cautiousness on monetary easing.