BEIJING (Reuters – China’s new bank lending declined sharply from October last year, however it did not fall as severely as predicted by analysts. They expect the central banks to reduce monetary policy with caution due to potential stagflation.

The People’s Bank of China released data Wednesday showing that banks granted 826.2 billion yuan ($129.27 trillion) in new yuan loan in October. This is a sharp decline from September’s 1.66 trillion yuan, but still better than what Reuters polled analysts to expect.

These loans are now more than six hundred thousand billion Yuan, compared to a year ago.

Yi Gang, the Governor of Central Bank, stated last month that China’s growth in money supply and total financial financing was largely consistent with nominal GDP growth. Liquidity is abundant.

According to analysts and policy sources, the People’s Bank of China is likely to move slowly on loosening monetary policy in order boost the economy. Slowing economic growth, high factory inflation, and rising stagflation are leading to concerns about stagflation.

China’s factory-gate inflation reached an all-time high of 26 years in October due to a surge in coal prices and a severe power shortage in China. These factors combined with a heightened fear about stagflation have eroded profit margins in China.

Broadly, M2 money supply grew 8.7% compared to a year before, central bank data indicated. This was above the forecast of 8.3% in the Reuters survey. The September M2 index rose 8.3%.

An outstanding yuan loans grew by 11.9% in September compared to 11.9% growth in September. Analysts were expecting 11.9% growth.

In October, the growth rate of outstanding social financing (TSF), an economic measure that includes credit and liquidity, was at 10.0%. This is unchanged from September.

TSF covers off-balance sheet financing forms that aren’t available in the standard bank lending process, like initial public offerings and loans from trust corporations.

TSF dropped to 1.59 trillion Yuan in October from September’s 2.9 trillion. Reuters analysts polled had predicted October TSF to be 1.6 billion yuan.