Beijing: China’s broadest measure of money supply rose at the fastest pace in 15 months, aiding Premier Wen Jiabao’s efforts to reverse a slowdown in the world’s second-biggest economy.
M2 climbed 14.8 per cent in September from a year earlier, the People’s Bank of China said on its website today. That compared with the 13.7 per cent median estimate in a Bloomberg News survey. Foreign-exchange reserves, the world’s largest, rose to $3.29 trillion (Dh12.08 trillion) at the end of September from $3.24 trillion at the end of June, the report showed.
The acceleration in money supply growth and better than expected export data reported today, may reduce pressure on Wen to step up policy easing. A slower increase in foreign-exchange reserves may also help China rebut criticism of its currency policy by US Republican presidential candidate Mitt Romney.
“Overall monetary conditions have turned accommodative in supporting economic growth,” said Chang Jian, an economist at Barclays Plc in Hong Kong. “This coupled with possibly stabilising external demand, as evidenced by the improvement in foreign trade, together with concerns about a rebound in inflation and property prices, could further delay a cut in interest rates or reserve requirements.”
Central bank data yesterday showed new local-currency loans in September were 623.2 billion yuan (Dh364.99 billion;$99.4 billion), a record for that month. Aggregate financing, an indicator designed to capture other funding sources, such as trust loans and bond and stock issues, rose 20 per cent in the first nine months.
A customs administration report today showed September exports climbed at the fastest pace in three months while imports rose 2.4 per cent, recovering from a drop the previous month.
The growth in M2 was higher than 30 out of 31 estimates in Bloomberg’s survey and the first time this year the gauge has increased by more than the central bank’s 2012 target of 14 percent.
The PBOC has refrained from cutting interest rates since July and has held lenders’ reserve requirements at 20 per cent for the biggest banks since the last reduction in May, preferring to control liquidity in the financial system using reverse repurchase agreements.
While inflation has been below the government’s 2012 target of 4 per cent for seven months, PBOC Deputy Governor Yi Gang said in Tokyo today that “challenges to maintaining price stability remain”, citing high and volatile commodity prices and rising costs in China.
Foreign-exchange reserves rose $50 billion from the end of June after a $65 billion drop in the second quarter, central bank data show. They reached a quarterly record of $3.30 trillion in March.
China’s official foreign-exchange holdings “may have reached or are close to their peak,” according to Yao Wei, a Hong Kong-based economist at Societe Generale SA. The reserves are undergoing a long-term “decentralization” process as the central bank has gradually allowed Chinese companies and households to hold more foreign currency, she said.
The drop in reserves in the second quarter was partly caused by an increase in private deposits of foreign currency and local bank credit to foreigners, Yao wrote in a note last month. About two-thirds of the reserves, under the management of the State Administration of Foreign Exchange, are in US dollars and another quarter in euro, so exchange-rate movements can affect the nominal value of the holdings, she said.
Deputy Governor Yi said in Tokyo yesterday that China’s official reserves have been “flat” for the past year as the central bank “dramatically” reduced intervention in the foreign-exchange market. Holdings tripled from the end of 2006 to 2011 as authorities bought foreign currency to keep the yuan from appreciating too rapidly.
Yi said that looking at market supply and demand, the yuan is “very close to its equilibrium level.”
The Chinese currency has risen about 2 per cent against the US dollar since this year’s low on July 25, after weakening 1.5 per cent since January when the government held back gains to support exporters. The yuan strengthened for a 10th straight week against the US dollar and touched the highest level in 19 years yesterday before closing at 6.2672 per dollar.
In the US, presidential candidate Romney has pledged to designate China a currency manipulator if elected, a step the US government hasn’t taken since 1994.