BEIJING (Reuters – While new bank lending to China has fallen in October compared to the previous month, yuan loans will likely rise in the coming year, a Reuters poll indicated. The central bank is cautious about easing policy amid stagflation worries and continues to push for policy easing.

According to the average estimate of 26 economists, Chinese banks have issued net new loans worth 800 billion Yuan ($125.04 trillion) last month. This is down from September’s 1.66 trillion yuan.

It would have been more than 689.8 million yuan, which was issued the previous year in that same month.

Yi Gang, Central Bank Governor, said that China’s total and nominal GDP growth were closely aligned with the growth of China’s money supply. And liquidity is plentiful.

As slowing economic growth, soaring inflation in factories and other factors fuel fears of stagflation and a decrease in monetary policy, the People’s Bank of China will probably move with caution to loosen monetary policy.

While a few Chinese banks are speeding up the home loan process in some areas, there is no rush to release new credit due to the regulatory effort to deleverage this sector.

The world’s second largest economy is experiencing a slowdown in momentum due to new curbs on COVID-19, severe power shortages in factories, and an active debt crisis.

On Monday, the PBOC announced that it would provide low-cost loans for financial institutions to assist firms in reducing carbon emissions. This will support long-term goals of carbon neutrality.

Goldman Sachs (NYSE) analysts estimated that the PBOC would provide funding support of around 1.2 trillion yuan over the next year.

According to the poll, October was forecasted to see an 11.9% increase in annual outstanding loans in yuan. This is similar to September. Broad M2 supply growth was at 8.3% in October, which is identical to the previous month.

The finance ministry data show that China’s local governments have issued special bonds worth 2.37 trillion Yuan over the nine-month period.

It will be a priority for the government to issue special local government bonds in 2022 as soon as possible.

An acceleration of government bond issuance may help to boost total social finance (TSF), which includes credit and liquidity. The outstanding TSF growth rate slowed down to 10.0% in September. This is the slowest pace since at most 2017.

TSF will drop to 1.6 trillion Yuan by October from the previous month’s 2.9 trillion.

($1 = 6,3980)