Growth in China's M2 slows as reserve ratio up

By Zhang Fengming  |   2008-7-15  |     NEWSPAPER EDITION

CHINA'S money supply growth slowed in June as the central bank ordered lenders to set aside larger reserves and the trade surplus narrowed.

M2, the broadest measure of money supply, rose 17.4 percent to 44.31 trillion yuan (US$6.49 trillion) from a year earlier, the People's Bank of China said yesterday on its Website, after gaining 18.1 percent in May.

New yuan lending added 2.45 trillion yuan in the first half, down 89.9 billion yuan from a year ago. In June, yuan loans grew 332.4 billion yuan, down 119 billion yuan.

The outstanding value of yuan loans rose to 28.62 trillion yuan at the end of June, up 14.12 percent from a year ago. The growth is down 0.74 percentage point from a month ago and down 1.98 percentage points over the level at the end of last year.

"The decreasing money supply growth showed that inflation pressure is likely to ease in the future," Lu Zhengwei, an Industrial Bank chief economist said yesterday.

Forex reserves

China's foreign exchange reserves surged 35.73 percent to US$1.8 trillion as at the end of June. Forex reserves increased US$280.6 billion in the first half, up US$14.3 billion year on year. In June alone, forex reserves gained US$11.9 billion, down US$28.1 billion.

The nation's trade surplus remains one of the main sources of inflows of money but it has narrowed 21 percent in June from a year earlier to US$21.4 billion.

"The monetary figures indicated that there's no push for interest rate increases in July. But it is likely the central bank will increase the reserve requirement ratio once again, likely between July 25 and August 10," Lu said.

The central bank has already increased the reserve requirement ratio to a 23-year high of 17.5 percent - the fifth time this year the ratio has been raised.