CHINA TIGHTENS BANK LENDING RULES

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BEIJING - Banking regulators in China have ordered institutions to tighten controls on risk and carefully scrutinise borrowers' ability to pay their debts in a new step to rein in lending.

The government order comes as Beijing tries to prevent excessive lending that it says could lead to financial problems while ensuring adequate credit to keep the economic recovery on track.

Chinese leaders are worried that a stimulus-driven torrent of lending is fuelling a dangerous bubble in stock and real estate prices. Beijing has ordered banks to set aside additional reserves and to keep lending stable, but the central bank has avoided raising interest rates, which might slow growth.

The China Banking Regulatory Commission said in a statement that it issued two regulations to increase risk management on personal and working capital loans.

The rules took effect on Feb 12.

The regulation on working capital loans stated that banks must calculate borrowers' actual needs and also consider their cash flow, liabilities, repayment abilities and other factors when assessing loan applications.

On personal lending, the regulation says that borrowers may not obtain loans if they do not specify what the money is to be used for.

Chinese leaders have warned banks repeatedly to keep lending stable this year and avoid financing real estate and industrial projects that are not needed due to fears they might fuel inflation or leave banks burdened with bad debts if poorly planned projects fail.

Banks were ordered on Feb 12 to increase reserves by half a percentage point - to 16.5 per cent for large lenders and to 14.5 per cent for smaller institutions.

The government reported earlier this month that January bank lending rocketed to 1.4 trillion yuan ($290 billion) - nearly one-fifth of the planned 2010 total. AP

From TODAY, Monday, 22-Feb-2010

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FED CHIEF HAS SOME EXPLAINING TO DO

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WASHINGTON - US Federal Reserve chief Ben Bernanke (picture) is expected to shed light this week on the central bank's sudden decision to hike an emergency bank-lending rate, triggering speculation on monetary tightening.

Mr Bernanke is scheduled to appear before the financial committee of the House of Representatives on Wednesday and the Senate banking panel the next day, where his testimony will be closely scrutinised by jittery markets.

The Fed's increase on Friday of the discount rate, the interest it charges on emergency loans to banks, rattled stock markets. Investors feared the central bank might be moving faster than anticipated to withdraw critical support measures for the US economy, as it recovered from a brutal recession.

It was the first major action by the Fed to remove some of the unprecedented monetary easing measures; and also the first tinkering of interest rates by a central bank from the Group of Seven industrialised nations after emerging from recession, analysts said.

The markets were particularly concerned that the central bank was setting the stage for tightening the more significant federal funds rate, the benchmark interest rate that banks charge each other for loans now at virtually zero per cent.

"Hopefully, chairman Ben Bernanke's testimony to Congress (this) week will shed some important new light on the Fed's policy intentions," said Mr Brian Bethune, chief US financial economist of IHS Global Insight.

"It is indeed puzzling as to why the Fed made this move and announcement out of cycle with its meeting dates for 2010."

Although many had expected the Fed to raise the discount rate, considering the waning interest from banks for the short-term loan facility, the timing caught many by surprise, especially coming well ahead of the central bank's March 16 policy meeting.

If the Fed was laying the groundwork for dismantling the easy money policy critical to accelerating the US recovery, it appeared premature, analysts said.

The US economy expanded by a strong 5.7 per cent in the final 2009 quarter after 2.2 per cent growth in the preceding quarter, but unemployment near double digits is expected to persist for some time in the face of lagging job growth.

In addition, the latest consumer price data for January showed tame inflation, underscoring weak demand and still-fragile recovery from a recession that began in December 2007 and has cost more than seven million jobs.

"In some ways the timing of the Fed move is peculiar since growth is not exactly building in a clear way," said Mr Robert Brusca, chief economist at FAO Economics.

The economy "has been so weak for so long that if there is backsliding the possibility that economic weakness turns to financial catastrophe again is quite high", he added.

Bernanke is likely to sound "cautiously upbeat on growth and inflation" in his congressional testimony and focus on the "exit" strategy for the radical measures introduced to haul the world's largest economy from recession, said Mr Fabio Fois, an economist at Barclays Capital. AFP

From TODAY, Monday, 22-Feb-2010

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India enters deflation as economy slows

Posted: 18 June 2009 1510 hrs

A spice market in Mumbai

NEW DELHI: India's annual inflation rate slipped into negative territory, official data showed on Thursday, with the slowing economy cutting into demand.

Inflation stood at minus 1.61 per cent for the week ended June 6, down from 0.13 per cent the previous week, according to the Wholesale Price Index, India's most watched cost-of-living measure.

Less than a year ago, inflation in India touched dizzying 13-year highs, but a period of deflation had been expected as rates tumbled, reflecting slackening growth in Asia's third-largest economy.

Deflation – in which falling prices prompt consumers to delay buying, deepening a downturn – has become a growing concern across the globe as demand for goods has dried up.

India's inflation crash was a symptom "of a deeper malaise" with an "adverse environment" for jobs, salaries and business, prompting a fall in prices, HDFC Bank chief economist Abheek Barua said earlier this year.

The country's inflation rate has tumbled from 12.91 per cent last August also partly because of a dive in the global price of oil and other commodities.

- AFP/so

From ChannelNewsAsia.com; see the source article here.

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Britain faces 'slow' economic recovery: BoE

AFP - Thursday, May 14

The Bank of England in London in 2008. The outlook for British economic growth and inflation is "unusually uncertain," the Bank of England said when it presented its latest quarterly assessment of the economy.

LONDON (AFP) - - Britain's recession-hit economy likely faces a 'slow' recovery, Bank of England head Mervyn King said on Wednesday after the BoE said the outlook for British growth and inflation is "unusually uncertain."

"The economy will eventually heal, but the process may be slow," Governor King told reporters after the Bank of England published its latest quarterly forecasts.

"There are pretty solid reasons for supposing that there will be a recovery next year, but also pretty solid reasons for questioning if that will be sustained," he added.

The Bank of England said in its report that "the prospects for economic growth remain unusually uncertain, reflecting the exceptional economic and financial factors affecting the outlook."

It also suggested that the British economy would return to growth early next year.
The British pound slumped against the euro and dollar following the report as dealers said the outlook indicated that Britain would not see a rise in interest rates any time soon.

"The Bank of England are not buying the 'it's all over' mood (for the global recession) that seems to be sweeping over investors and market pundits," said ING Financial Markets economist Rob Carnell.

"The key phrase in their latest inflation report was 'It is more likely than not, that CPI inflation will be below the two percent target in the medium term' which indicates that there will be no end to the current policy of credit easing any time soon, and that rates will be kept low for the foreseeable future," he added.

Last week, the Bank of England decided to keep interest rates at a record-low 0.5 percent as Britain battles its sharpest slowdown in 30 years.

It agreed also to pump out another 50 billion pounds (75 billion dollars) of new money to boost bank lending following the crippling credit crunch.

The move to increase the new money supply to 125 billion pounds to boost bank lending is a form of monetary policy known as 'quantitative easing' or QE.

Under QE, the British central bank buys government bonds from commercial banks in the hope that the institutions will use the money to lend once again to businesses and individuals.

Jonathan Loynes, an analyst at Capital Economics, said the BoE's report injected a "sensible element of caution" amid recent talk about "green shoots" of economic recovery.

"Although the Bank still predicts a reasonably solid recovery in GDP growth next year, it has pulled its forecasts down a bit from February and warned that a sustained recovery could take some time to arrive.

"This appears at least partly to reflect a gloomier view on the outlook for bank lending," he added.

The Bank of England's key aim is to keep British annual inflation close to a government-set target rate of 2.0 percent.

British 12-month consumer price inflation (CPI) slowed to 2.9 percent in March owing to sliding gas, housing and transport costs, according to recent official data.

From Yahoo! News; see the source article here.

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