China's bank lending and money growth expanded faster than expected in June as loan demand remained buoyant, adding to the case for further monetary policy tightening. Coming days after news that China's inflation hit a three-year peak in June, Tuesday's data also showed the country's foreign exchange reserves soaring to a record $3.2 trillion at the end of the second quarter.
The build-up in reserves, which threatens to worsen China's inflation headache, argued for Beijing to leave its foot on credit brakes and further raise interest rates, some analysts said. But the latest data showed loan demand has defied Beijing's clampdown by staying resilient. Banks lent close to 634 billion yuan ($98 billion) in new yuan loans in June, the central bank said, beating the forecast for 590 billion yuan and above May's 552 billion yuan.
Annual growth in China's broad M2 measure of money supply also quickened to 15.9 percent in June from May's 15.1 percent, and above forecasts for 15.2 percent. Only annual growth in outstanding yuan loans met expectations at 16.9 percent. Bank lending is a focal point in China's monetary policy as it is controlled by Beijing through loan quotas to manage economic growth and control inflation. In the second quarter, China's foreign exchange reserves added another $153 billion, helped by a gaping trade surplus and Beijing's buying of dollars to hold down the yuan.
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