Chinese bank lending for January amounted to $182 billion, beating targets by 20%. This is in a year when total lending is supposed to reach $1 trillion.
So yeah, inflation is going full steam.
Now the question is how big a rate hike the People’s Bank will levy over the year. Credit Suisse predicts a 200 basis point hike. SWS analysts Michael Pettis and Chen Long see only a 75 point hike, which means the inflationary forces would win.
From Pettis’s newsletter:
The PBoC is unlikely to raise 1-year deposit rates to a level higher than CPI, but this is more likely for 3- or 5-year deposit rates, given that 5-year rates are 4.55% and January CPI is expected to be between 5-6%. We continue to expect 2-3 hikes early in the year, totaling 75bps for the year. More interestingly, Bloomberg reported this afternoon that China will raise the capital adequacy ratio for big banks by up to 2.5% when they lend “too much”, confirming that more tightening policies may be still on the way.
In short, the PBoC and the CBRC are probably going to try (when they’re not sniping) to constrain overall lending, but a lot of powerful sectors, including bank management, are going to be pushing in the opposite direction. As I have argued many times before, this is not a fight I think the PBoC will easily win, at least not until 2012-2013.