Money supply growth unlikely to slow
By Zheng Lifei (China Daily)
Updated: 2006-07-20 09:22
China's money supply growth is unlikely to fall significantly in the second
half of this year, as long as the economy and fixed-assets investment maintain
roaring double-digit growth, experts said.
The People's Bank of China,
the central bank, had set a growth target of 16 per cent for its M2, a broad
measure of money supply that covers cash in circulation and all deposits, this
year.
But the M2 had risen 18.43 per cent year-on-year to 32.28 trillion
yuan (US$4.03 trillion) by the end of June.
It grew 18.9 per cent and
19.1 per cent in April and May respectively.
The M1, an indicator of
liquidity which covers cash in circulation and current account deposits, rose by
13.94 per cent year-on-year to 11.23 trillion yuan (US$1.4 trillion) by the end
of June, according to the central bank.
It grew 12.5 per cent and 14 per
cent in April and May respectively.
Outstanding local currency loans in
all financial institutions stood at 21.53 trillion yuan (US$2.69 trillion) by
the end of June, up 15.24 per cent year-on-year and 7.3 percentage points lower
than the previous month.
New local currency lending in June increased by
394.7 billion yuan (US$49.3 billion), compared to 209.4 billion yuan (US$26.1
billion) in May.
The surging foreign exchange reserves and the sizzling
economy, economists say, are the two major factors propelling China's robust
money supply.
"The ballooning forex reserve is a major factor behind the
dynamic growth of the money supply," said Li Yongsen, an economist at Renmin
University of China.
The foreign exchange reserve, driven by the mounting
foreign trade surplus and the inflow of foreign direct investment, had surged to
a record US$941.1 billion by the end of June, the central bank said last
week.
"The central bank has to release new money to mop up the excess US
dollars in the marketplace and enforce a floating band for the renminbi, which
is driving up money supply growth," Li said.
As the high growth of the
forex reserve is unlikely to slow in the second half of this year, Li said, the
same pressure to mop up excess US dollars is expected to remain unless the
renminbi appreciates significantly.
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