Chinese authorities signaled Wednesday that bank lending would slow significantly this year, the latest in a series of moves intended to forestall inflation and stave off bubbles in the stock and property markets.

Liu Mingkang, chairman of the China Banking Regulatory Commission, said he expected Chinese banks to extend loans totaling about 7.5 trillion renminbi ($1.1 trillion), a decline of nearly 22 percent from the record 9.6 trillion renminbi lent last year.

“This year we will continue to control the pace and demand of the credit supply,” Mr. Liu said at a conference in Hong Kong, The Associated Press reported. He added that regulators were paying special attention to loans for local government projects and real estate. All banks, he added, had been ordered to “heighten their vigilance against an impossible, embedded credit risk.”

Stock markets in China and Hong Kong fell on the news. The Shanghai composite index, the main gauge of the mainland Chinese market, ended 2.9 percent lower, while the Hang Seng index in Hong Kong dropped 1.8 percent.

Shares in Bank of China and China Construction Bank sagged 3.4 percent and 3.1 percent, respectively, in Hong Kong, while Industrial and Commercial Bank of China fell 2.6 percent.

Still, economists said the signal from Chinese policy makers was neither surprising nor drastic and showed that Beijing was “tapping on the brakes” rather than engineering a major policy reversal.

“The 7.5 trillion renminbi target for this year is hardly an insignificant amount by anyone’s definition,” said Patrick Bennett, a strategist at Socit-Gnrale in Hong Kong, adding that he believed the market reaction had been excessive.

“Bank lending has apparently been strong in the first weeks of the year,” Mr. Bennett said, “and the recent policy moves and announcements are clearly designed to deal with that at an early opportunity.”

A government stimulus package worth 4 trillion renminbi ($645 billion), coupled with the spree of easy credit as the country’s state-owned banks were told to lend freely, helped China stave off a sharp economic slowdown last year.

The easy cash has helped drive a rapid rise in China’s stock and property markets, while feeding concerns that some of the loans extended by eager banks may turn sour.

Inflation has been on the rise as the Chinese economy has picked up speed, adding to the pressure on the authorities to temper economic activity and limit price increases.

Zhu Baoliang, chief economist for the State Information Center and a senior government official, said Wednesday that consumer price inflation had accelerated “significantly” in December and was likely to average 3 percent this year, Reuters reported.

At the same time, exports, a main driver of China’s economic growth, rebounded more quickly than expected at the end of last year, giving the authorities more leeway to unwind some extraordinary stimulus measures.

In another recent action to scale back lending, the Chinese central bank ordered state-owned banks last week to set aside a bigger share of their deposits as a reserve against failed loans – 16 percent for larger banks, an increase of half a percentage point. Smaller banks reserve requirements were raised to 14 percent, from 13.5 percent.

The central bank raised the rate on a closely watched interbank loan this month, and it raised the rate on its one-year bills. Analysts also expect China to start gradual increases in the benchmark lending rate – a more sweeping policy tool – though that is not expected until the second half of the year.

So far, only a handful of countries, including Australia and Norway, have begun to nudge up interest rates as their recoveries have taken hold.

last night, the central bank announced that from June 5 yuan from financial institutions to raise the deposit reserve ratio by 0.5 percentage points. From May 19 yuan from financial institutions raised benchmark deposit and lending interest rates. Analysis of Shanghai researcher points out that this is the last 10 years the first time also announced that raising the deposit reserve rate and the benchmark deposit and lending interest rates. Shows that the management tried to reduce market risk, and resolve the determination of a speculative bubble. This is for real estate loans has little effect on the insurance industry and good.

The first time the five-year deposit interest rate increases 0.54
banks face earnings pressure
It is worth noting that this at the central bank announced that financial institutions in the five-year benchmark deposit interest rates 0.54 percentage points, and contrast, the five-year benchmark lending rate 0.09 percentage point hike alone. Personal housing accumulation fund the five-year loan rate was only 0.09 percentage points adjusted upwards accordingly.

In this regard, the Central Plains Analysis Securities researcher said, “This is the profitability of the mainland banking sector will constitute the new pressures. Prior to China’s deposit and lending rates increase in the basic, as adjusted and the bank to pay interest on deposits has improved significantly, while the lending interest rate to accelerate the decline in access. This has always been dependent on income spreads most commercial banks, will have a negative impact. “It is understood that this adjustment, the long-term deposit, loan spreads at 2.25, while the original rate of 2.7, reduced 0.45 points to reach 17% decline.

At the same time, Lyon, a researcher at that “interest rate increase the profitability of insurance companies for the mainland to form good, because the current structure of insurance assets ratio of more than 20% for bank deposits. Research data indicate that rising interest rates 0.27 basis points each, life insurance companies and other large stock price is expected to be up 5 percent support. ”

Short-term lending rates higher than long-term
curb excessive speculation
At the same time, the adjustment of short-term Loan interest rates range, significantly higher than long-term. Galaxy Securities analyst Gao Xiaofeng analysis, “the original short-term lending rates relatively low, since the first quarter of this year, subject to hot pursuit, this part of the funds into the stock market. The encounter marked increase, which would lead banks to tighten short-term loans due in order to market liquidity will gradually shrink, but it also requires a process will have obvious market reaction. ”

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1. Brazil
The Brazilian property market has got a lot going for it. The country is attracting a lot of inward investment, has one of the world’s fastest growing economies, a rapidly emerging mortgage market, a general shortage of quality homes, and has been selected to host the 2014 football World Cup and 2016 Olympic Games. This will lead to the construction of new and improved infrastructures and homes across Brazil.
Property investors from around the world are flocking to Brazilian shores with a view to snapping up real estate, in anticipation of future capital growth.

One local expect projects Brazilian property prices could appreciate by up to 200% over the next decade, driven by the country’s burgeoning economy, and the pending introduction of mortgages to overseas nationals. Investment banking firm Goldman Sachs believes that Brazil’s economic growth could outstrip that of the other BRIC (Brazil, Russia, India and China) member nations over the next few years.

Brazil’s economy is widely expected to become the fifth largest in the world by the time the Olympic Games kicks off in 2016, and yet Brazil property and land prices still remain a fraction of those found in more developed nations. The Brazilian president Luiz Inacio Lula da Silva has already pledged to spend up to ??11.5bn on building a million new homes in Brazil between now and 2011. However, potential high property investment rewards are not with out their risks, as crime and corruption still remains widespread in Brazil.

2. France
In stark contrast to the relatively high risk, high return nature of investing in Brazil, the risks associated with investing in French property are far lower. France has traditionally always been a rather safe haven for property investors. The nation was the first European country to come out of recession in 2009, reflecting the fact that the global credit crunch had much less of an impact, compared to other European counterparts.

France’s strong economy is having a positive impact on its property market, which now appears to be on the road to recovery. Increasing property and mortgage transactions are boosting residential values, with the latest FNAIM data revealing that the average price of a French property appreciated by 2.8% between April and September 2009.

Although average prices remain down 7.8% year-on-year, the market is generally expected to improve further, due to France’s prudent attitude to mortgage lending. Anyone taking out a mortgage in France is generally only permitted to borrow one third of their total gross monthly income. This has ensured that mortgages remain readily available, with 100% loan-to-value home loans available at competitive borrowing rates.

Consequently, mortgage lending in France is soaring. French mortgage broker Athena Mortgages reports that there was a 21% rise in mortgage enquiries in Q3 2009 compared with the previous quarter.

The buy-to-let and leaseback sectors are reportedly attracting particular interest from investors, due to improved yields across the country. The capital city of Paris has long been identified as one of the most attractive European cities for investment, and is typically the most popular place to buy a home in France, along with Cannes, Marseille and Nice, which are all located along the southern Mediterranean coast.

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The Bank of Canada kept its benchmark lending rate at 0.25 per cent Tuesday, reiterating its conditional commitment to hold rates steady until the middle of 2010.

“While significant fragilities remain, global economic developments have been slightly more positive and the global outlook has improved modestly,” the bank said in announcing the rate decision.

The decision to keep rates low concerns some economists.

“It’s too much of a good thing,” Benjamin Tal, an economist with CIBC World Markets, told Havard Gould of CBC’s The National. “It’s stealing [sales] activity from the future.”

Gould’s report will be broadcast Tuesday evening.

“We’re seeing 10, 12, 13 per cent increases in real estate value in places,” Tal said. “In the ninth inning of a recession, that’s crazy. Are we creating a bubble? If we continue this way for another 12 months, we will be.”

Tal warned that some consumers face a major shock when their mortgages and other debt payments rise, which he says is only a matter of time.

“Rates will rise, and when they do, they will rise much faster than when they fell,” he said. “The amount could be a two or three percentage point increase.”

Borrowers should ask themselves if they can afford such an increase, Tal said. “If you cannot, buy a smaller house.”

Toronto mortgage broker Marcus Tzaferis would agree.

“To those on a variable rate who aren’t keeping an eye on it, I would say call your bank,” he said. “I think there’s a belief that the worst is behind us, and there’s no way property values can decrease again, but in actual fact we didn’t really see much of a decrease.

Tzaferis said conditions now are artificial.

“I believe we have inflated prices. This is a bubble.”

Although recent data on GDP and inflation has diverged somewhat from projections, “the main drivers and the profile of the projected recovery in Canada remain consistent with the bank’s views,” the bank said.

The Canadian economy grew by a tepid 0.1 per cent in the third quarter, Statistics Canada reported earlier this month.

Canada’s central bank expects economic growth to become more solidly entrenched throughout 2010 and inflation to return to the two per cent target in the second half of 2011.

RBC economist Dawn Desjardins expects the central bank will raise rates by a full percentage point in the latter half of 2010, once it is more confident the recovery is underway.

The central bank softened its view on the impact of the strengthening currency, indicating persistent strength in the Canadian dollar could act as a significant further drag on growth and put additional downward pressure on inflation,” Desjardins noted in reaction to the decision.

The central bank is set to unveil its next decision on lending rates on Jan. 19, 2010.

Mauritius’ embattled central bank chief has said he will step aside temporarily to help an inquiry into accusations that he abused expenses, if the Indian Ocean island’s prime minister asked him to do so. An increasingly acrimonious feud among the board at the Bank of Mauritius this week saw Governor Rundheersing Bheenick reject calls from a majority of board members for his resignation.

Bheenick said in an interview with Reuters late on Friday he was ready to assist the inquiry called for by the Treasury. “I am willing to step aside while the fact-finding committee is doing its job if the prime minister, who appointed me as governor of the Bank of Mauritius, gives his approval,” he said. Analysts warn that the central bank’s independence has been thrown into question by the deepening rift at a time when the Indian Ocean island’s almost $10 billion economy remains vulnerable to the fragile global outlook.

Bheenick said the six board members who publicly demanded he step down should also “take some distance from the bank” during an eventual inquiry. Relations between Bheenick and Finance Minister Ramakrishna Sithanen, who nominates board members, have been strained since the governor’s appointment by the prime minister in early 2007. The poor rapport came to a head last year when the central bank and Treasury were at odds over how to tackle a slowing economy and near double-digit inflation.

NO IMMEDIATE RATE RISE A Reuters poll this week showed the annual average rate of inflation falling to 2.7 percent by end-December from a peak of 9.9 percent in October 2009. It was forecast to rise to 5.1 percent by the end of 2010. Bheenick said he saw no need to increase the bank’s benchmark lending rate from 5.75 percent until there were clear signs of the economic recovery fuelling inflation. “For the moment the problem is not inflation, it is deflation. I don’t think the repo rate is going to increase immediately,” he told Reuters.

Consumer prices in the import-dependent economy are expected to trend upwards mid-2010, Bheenick said, as economies worldwide rebound and commodity prices pick up. Official forecasts put economic growth at 4.3 percent next year. Respondents to the Reuters poll were less optimistic, with a median forecast of 3.6 percent.

Mauritius, which analysts say imports some 80 percent of its food, should move to shield itself from future spikes in food and oil prices, Bheenick said. “As an import-dependent nation, Mauritius must think about developing offshore farming in neighbouring countries like Madagascar and Mozambique,” he said. The palm-fringed island, which is widely covered by sugar cane, plans to buy 20,000 hectares of prime farmland in Mozambique to ease food security worries.

Gold jumped to a record price as the slumping dollar boosted bullion’s appeal as an alternative asset. Silver also gained.

Gold futures touched an all-time high of $1,174 an ounce in New York, after the dollar fell as much as 0.9 percent against the euro. Gold has posted records during nine sessions this month, and is up 32 percent this year as investors and central banks increased their holdings of the metal to preserve wealth. Russia’s central bank said it bought more bullion last month.

“All this buying shows no confidence in the dollar,” said Bernard Sin, the head of currency and metals trading at bullion refiner MKS Finance SA in Geneva.

Gold futures for December delivery rose $17.90, or 1.6 percent, to $1,164.70 an ounce on the New York Mercantile Exchange’s Comex division, the biggest gain in a week.

In London, bullion for immediate delivery climbed $13.73, or 1.2 percent, to $1,164.33 an ounce at 7:43 p.m. local time after earlier touching a record price of $1,174.

Gold may surge to $1,500 an ounce over the next 18 months, Bank of America Merrill Lynch analysts said today in a report.

The U.S. Dollar Index, a six-currency gauge of the greenback’s value, slid on speculation that the Federal Reserve will hold U.S. interest rates at historic lows indefinitely. The Fed cut the target range for its benchmark lending rate to zero percent to 0.25 percent in December. The dollar index is down 7.6 percent this year.

Russia’s central bank increased its gold holding to 19.5 million ounces last month from 19 million ounces in September, Bank Rossii said on its Web site.

Government Buying
Governments, the biggest holders of gold, have been expanding their bullion reserves, helping to spur an 8.3 percent rally in the metal’s price from Oct. 20 to Nov. 20. India’s central bank bought 200 metric tons from the International Monetary Fund in October. Mauritius and Sri Lanka also have been buying gold. The IMF still has about 200 tons left to sell.

“Any given emerging-market central bank cannot hedge against further U.S. dollar weakness by buying euros or sterling,” Bank of America Merrill Lynch said, citing the likelihood of rate moves by the European Central Bank and the Bank of England. “This is because there is a significant probability that the ECB and the BOE will have to follow any monetary policy moves by the Fed.”

The ECB’s benchmark lending rate is at 1 percent and the Bank of England’s main rate is at 0.5 percent.

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Gold jumped to a record price as the slumping dollar boosted bullion’s appeal as an alternative asset. Silver also gained.

Gold futures touched an all-time high of $1,174 an ounce in New York, after the dollar fell as much as 0.9 percent against the euro. Gold has posted records during nine sessions this month, and is up 32 percent this year as investors and central banks increased their holdings of the metal to preserve wealth. Russia’s central bank said it bought more bullion last month.

“All this buying shows no confidence in the dollar,” said Bernard Sin, the head of currency and metals trading at bullion refiner MKS Finance SA in Geneva.

Gold futures for December delivery rose $17.90, or 1.6 percent, to $1,164.70 an ounce on the New York Mercantile Exchange’s Comex division, the biggest gain in a week.

In London, bullion for immediate delivery climbed $13.73, or 1.2 percent, to $1,164.33 an ounce at 7:43 p.m. local time after earlier touching a record price of $1,174.

Gold may surge to $1,500 an ounce over the next 18 months, Bank of America Merrill Lynch analysts said today in a report.

The U.S. Dollar Index, a six-currency gauge of the greenback’s value, slid on speculation that the Federal Reserve will hold U.S. interest rates at historic lows indefinitely. The Fed cut the target range for its benchmark lending rate to zero percent to 0.25 percent in December. The dollar index is down 7.6 percent this year.

Russia’s central bank increased its gold holding to 19.5 million ounces last month from 19 million ounces in September, Bank Rossii said on its Web site.

Government Buying

Governments, the biggest holders of gold, have been expanding their bullion reserves, helping to spur an 8.3 percent rally in the metal’s price from Oct. 20 to Nov. 20. India’s central bank bought 200 metric tons from the International Monetary Fund in October. Mauritius and Sri Lanka also have been buying gold. The IMF still has about 200 tons left to sell.

“Any given emerging-market central bank cannot hedge against further U.S. dollar weakness by buying euros or sterling,” Bank of America Merrill Lynch said, citing the likelihood of rate moves by the European Central Bank and the Bank of England. “This is because there is a significant probability that the ECB and the BOE will have to follow any monetary policy moves by the Fed.”