China's money growth slowed to a 30-month low in May and banks extended fewer new loans than expected as tight monetary policy weighed on bank lending, but stubborn inflation is expected to persuade the government to keep its foot on the credit brakes.

Though there are signs that growth in the world's second-biggest economy is cooling slightly, analysts said taming price pressures remains a top priority for Beijing, especially as policymakers see little chance of a sharp slowdown for now.

"We continue to look for one more interest rate hike in June and believe it is too early to loosen policy," said Jian Chang at Barclays Capital in Hong Kong, while noting there was a chance the rate increase could be delayed until July.

The timing of the next rate rise could well depend on May inflation data expected tomorrow. Analysts polled by Reuters predicted annual inflation edged back up to 5.4 percent in May, the highest in more than 30 months, and a government researcher said in remarks reported on Sunday that it may accelerate to more than 6 per cent in June.

Investors are eyeing Chinese data and its policy stance even more closely than usual amid signs of a global slowdown.

Chinese banks extended 551.6 billion yuan (€58.8 billion) worth of local currency loans in May, central bank data showed, missing market forecasts for 610 billion yuan.

Annual growth in China's broad M2 measure of money supply slowed to a 30-month low of 15.1 per cent in May, while outstanding yuan loans at the end of the month grew 17.1 per cent from a year ago.

The median forecast of economists was for a 15.4 per cent rise in M2 and a 17.1 per cent growth in outstanding loans.

Bank lending is a focal point in China's monetary policy because it is controlled by Beijing through loan quotas to manage economic growth and control inflation.

Most analysts said, however, that the moderation in money growth and bank lending were more a result of Beijing's lending restrictions rather than a drop off in demand for loans.

"It is still to early to say that the loan demand is declining because of a slowing economy," said E Yongjian, an analyst at Bank of Communications in Shanghai. "We should not read too much into a single month's loan data."

Indeed, record annual profits for Chinese banks suggest that Beijing's clampdown on credit has not hurt lending. Despite lending less, banks are benefiting from a buoyant demand for loans and are charging higher interest rates.

Reuters