China's economy cools, limiting need for tighter policy

China's industrial output growth eased much more than expected in April to suggest the world's second-biggest economy is cooling, reducing the need for further aggressive monetary policy tightening even as inflation remains stubbornly high. Consumer inflation eased modestly to 5.3 percent in April from a 32-month high in March of 5.4 percent.
The outcome topped expectations but still underlined the view that price pressures are peaking and may start to ease in the second half of 2011. Industrial output rose 13.4 percent from a year earlier, but that was more than a full percentage point below both expectations and a strong pace in March. Retail sales growth eased more than expected while annual increases in money supply and outstanding yuan loans hit their lowest pace in 29 months, signs that measures to slow the economy are starting to bite.
Most analysts said the central bank could now reduce the scope of further tightening in monetary policy, while a prominent Chinese government economist went further, saying policymakers may be concerned about an overly rapid slowdown.
Other analysts were not so sure. The central bank is approaching the end of a monetary tightening cycle after four rates rises since October, and seven increases in bank reserve requirements to a record 20.5 percent for big banks, they said. Policymakers, targeting 4 percent average inflation this year, have declared tackling inflation their top priority for this year after high food prices raised fears of broader inflation that could derail the recovery or even spark social unrest.
Food prices fell 0.4 percent in April from March but were 11.5 percent higher than a year earlier. Non-food prices rose 0.4 percent in April from March. Retail sales rose 17.1 percent, lower than 17.6 percent forecast in a Reuters poll and weakening from 17.4 percent in March.
Chinese banks extended 739.6 billion yuan ($113.9 billion) in new yuan loans in April, more than market forecasts for 700 billion yuan, People's Bank of China figures showed. M2 money supply growth of 15.3 percent was lower than forecasts of 16.5 percent and was the lowest pace in 29 months.