China's new yuan loans fell in February from one month earlier, despite the government's moves to replenish liquidity and support economic growth.

Chinese financial institutions issued 710.7 billion yuan (112.81 billion U.S. dollars) in loans in February, up 173 billion yuan year-on-year, the People's Bank of China (PBOC) said Friday in a statement on its website.

The lower-than-expected figure for new lending was down from 738.1 billion yuan in January, and below the 750-billion-yuan growth predicted by many economists.

Last month, the central bank lowered the reserve requirement ratio for banks by 50 basis points, the second such cut in three months, to ease the short-term credit crunch and secure growth in the wake of a lackluster external market.

By the end of February, the outstanding broad money supply (M2), which covers cash in circulation and all deposits, rose 13 percent year-on-year to 86.72 trillion yuan, according to the PBOC's statement

M2 growth in February was 0.6 percentage point higher than that at the end of January.

The narrow measure of money supply (M1), which covers cash in circulation plus demand deposits, rose 4.3 percent year-on-year to 27.03 trillion yuan as of the end of last month, the statement said.

M1 growth was 1.1 percentage points higher than that at the end of January.

February's new loan figure came after the National Bureau of Statistics released a slew of other economic indicators, including industrial output and retail sales, which showed that economic activity has been slowing in the world's second-largest economy over the past two months.

The country's consumer price index, a main gauge of inflation, increased 3.2 percent year-on-year in February, the slowest pace in 20 months.

Analysts said the subdued inflation will provide more room for the government to stimulate growth by loosening monetary policies.

Besides the relatively tight liquidity in the country's banking system, "the drop in new loans is also a result of less demand for credit and continued government restrictions over bank lending," said E Yongjian, a financial researcher from Bank of Communications, one of China's leading lenders.

"The government still imposes strict controls on property loans, which restricted the credit growth," E said.

According to the PBOC statement, gross yuan loans outstanding increased 15.2 percent year-on-year to 56.24 trillion yuan, slowing 2.5 percentage points from a year earlier. But the growth rate was 0.2 percentage point higher than that at the end of January.

New yuan-denominated deposits reached 1.6 trillion yuan in February, up 282.4 billion yuan from one year earlier.

Gross yuan-denominated deposits outstanding amounted to 81.74 trillion yuan by the end of last month, up 12.6 percent year-on-year, although the growth rate was 5 percentage points lower than a year earlier.

Meanwhile, outstanding foreign currency-denominated loans hit 544.4 billion U.S. dollars by the end of last month, up 16.1 percent year-on-year.

In February, cross-border trade deals settled in yuan reached a value of 190.7 billion yuan, while direct investment in yuan totaled 12 billion yuan, according to the statement.

"Bank lending will rebound in March on increased liquidity caused by the easing of the country's monetary policies as well as rising bank deposits and yuan funds outstanding for foreign exchange," said Zhou Wenyuan, an analyst with Guotai Junan Securities.

Zhao Qingming, a senior researcher with China Construction Bank, shared this view, saying, "Chinese banks are likely to extend over 1 trillion yuan in loans this month."

February's lower-than-expected lending, combined with subdued inflation, will prompt the government to loosen its grip on credit in order to prevent a sharp slowdown in the economy.

"I expect two additional 50-basis-point cuts to the reserve ratio over the rest of the first half," said Li Jing, JP Morgan Chase chairman of global markets China.