China’s money supply growth retreated to its slowest pace in three months in March, constrained by tightening regulations aiming at curbing financial leveraging, according to central bank data released on April 13.
The year-on-year growth of M2, or the broad measure of money supply covering cash in circulation and all deposits, slowed to 8.2 percent at the end of March from 8.8 percent in February and 8.6 percent in January, according to the People’s Bank of China.
“The slight slowdown of money supply is related to seasonal and temporary factors,” and there is no need to over-interpret the short-term drop, Ruan Jianhong, head of the central bank’s surveys and statistics department, said at a news conference on April 13.
The central bank is considering gradually abandoning this variable as a monitor of monetary policy and economic growth, while shifting to pricing tools, such as interest rates.
The stabilized growth of the money supply could be seen as a result of the continued prudent monetary policy amid tightening financial regulations, said Ruan, calling both the money supply and market liquidity right now “reasonable and moderate”.
Another indicator of market liquidity, outstanding bank lending of new yuan, reached 124.98 trillion yuan ($19.9 trillion) at the end of the first quarter, with a year-on-year growth rate of 12.8 percent, unchanged from February’s rate, but slower than the 13.2 percent in January, the official data indicated.
China will maintain its monetary policy in the coming months, according to the PBOC official.
In the first quarter, total social financing, which includes off-balance-sheet financing in addition to regular bank lending, increased by 5.58 trillion yuan, 1.33 trillion yuan less than the incremental amount in the same period last year. The incremental amount in March was 1.33 trillion yuan, compared with 1.17 trillion yuan in February, said the PBOC.
In the meantime, China’s foreign exchange reserves reached $3.14 trillion, remaining stable with the amount at the end of 2017. The yuan’s exchange rate was 6.2881 per dollar, and appreciated by 3.77 percent in the quarter, the PBOC data showed.
Yi Gang, governor of the central bank, announced a slew of detailed plans on April 12 to further open up China’s financial sector, including increasing the daily quotas under the Shanghai-and the Shenzhen-Hong Kong Stock Connect scheme, while aiming to launch the Shanghai-London Connect this year.
“The measures will help draw more capital inflows, and in the long term, we expect it will attract more global institutional investors,” said Zhu Haibin, chief China economist and head of China equity strategy with J.P. Morgan.
