The pace of Chinese bank lending slowed in March, marking an initial victory by Beijing in its campaign to stop the world's third-largest economy from bubbling over.
Net new lending slowed last month to 510.7 billion yuan ($75 billion), well below forecasts of a 750 billion yuan rise and February's total of 700.1 billion, the People's Bank of China said on Monday.
The central bank, working hand in glove with the banking regulator, has been pressing banks hard to be prudent in their lending.
The PBOC has also stressed its intention to enforce a lower loan quota in 2010 of 7.5 trillion yuan, down from a record 9.6 trillion last year, when banks did the government's bidding and lent freely to help the economy through the global financial crisis.
Lower-than-expected yuan loan data in March is certainly good news given the rising overheating pressures in the economy, Goldman Sachs economists Yu Song and Helen Qiao said in a note to clients.
Lending in the first quarter totaled 2.6 trillion yuan, or nearly 35 percent of the full-year target.
Chinese banks traditionally front-load their lending, and extend proportionately less credit as the year wears on, but economists said the authorities could not afford to relax.
Beijing's efforts to tighten liquidity and credit conditions have clearly started to have an impact, said Brian Jackson with Royal Bank of Canada in Hong Kong.
This should take some of the steam out of the Chinese economy, but we believe that policymakers will need to use all of the policy tools at their disposal to prevent overheating. That includes rate hikes and a stronger currency, he said.
China is under intense pressure from the United States to permit the yuan to resume its rise after keeping it pegged to the dollar since July 2008 to help the country's exporters ride out the international economic downturn.
Since the start of the year, the PBOC has twice raised the proportion of deposits that banks must hold in reserve, rather than lend out, and has aggressively mopped up spare cash from the banking system through open market operations.
But it has so far kept the currency on a tight leash and left its benchmark interest rates unchanged.
Australia, Malaysia, Indonesia and Vietnam, by contrast, have all raised borrowing costs as they unwind some of the stimulative policies adopted to tackle the crisis.
Shi Yuchen, an economist at Industrial and Commercial Bank of China in Beijing, said the moderation in loan growth would give the central bank some leeway.
Annual growth in China's broad M2 measure of money supply also slowed, to 22.5 percent in March from 25.5 percent in February.
I think the first interest rate increase will happen in the third quarter and will be only a symbolic rise, Shi said.
Xu Biao, an economist with China Merchants Bank in Shenzhen agreed that the lending data gave policymakers some breathing space.
But if property prices continue to rise, that single factor alone may force the PBOC to raise interest rates, Xu said.
The central bank also reported that its foreign exchange reserves, the world's largest stockpile, rose by $47.9 billion in the first quarter to $2.4471 trillion.
That was much less than the $126.5 billion in the fourth quarter of 2009, largely due to a 77 percent drop in China's trade surplus in the January-March quarter to $14.49 billion.
(Additional reporting by Aileen Wang and Michael Wei; Editing by Jacqueline Wong