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China's new yuan loans below forecast, significant tightening unlikely

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BEIJING, Nov. 11 (Xinhua) -- Yuan-denominated lending in October came in at a touch over 506.1 billion yuan (82 billion U.S. dollars), an increase of 700 million yuan from the same period last year, according to a statement issued by China's central bank on Monday.

The volume was a retreat from the 787 billion yuan in September and well below market expectations of around 550 billion.

"Most of the decline is seasonal, as loan demand usually softens toward year end," said Lu Ting and Zhi Xiaojia, China economists with Bank of America Merrill Lynch, in a research note, adding the decline could also reflect weaker loan supply.

The People's Bank of China (PBOC) said new yuan loans for the first ten months amounted to 7.78 trillion yuan, rising 557.7 billion yuan from a year earlier.

M2, a broad measure of money supply that covers cash in circulation and all deposits, increased 14.3 percent year on year to 107 trillion yuan at the end of October, the PBOC said.

The narrow measure of money supply (M1), which covers cash in circulation plus demand deposits, expanded 8.9 percent to 31.9 trillion yuan as of the end of last month.

China's total social financing aggregate, a broad measure of liquidity in the economy, stood at 856 billion yuan in October, also below market forecasts of 1 trillion.

Monday's data came as China's economy gains strength while inflation is trending upwards.

Earlier data showed China's consumer price index (CPI), a main gauge of inflation, grew 3.2 percent year on year in October, the fastest pace since February.

Before the inflation data, the PBOC has warned in a report that "the foundation for price stability is not solid" and "upward pressure on prices still exists", which indicates authorities will adopt a more hawkish policy stance, says a latest report from Barclays.

In consideration of the new dynamics in the economy, analysts largely believe the central bank will maintain a steady stance while fine-tuning its policies to balance growth and reforms.

"Though we cautioned in mid-October that the government could scale back its pro-growth measures and the PBOC could prevent credit growth from quickening, we don't think the PBOC will significantly tighten monetary policy as the new leaders still need a stable economic and financial environment," noted Lu and Zhi.

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