China: Monetary Statistics For January

The People’s Bank of China just released the monetary statistics for January 2011.  M2 Money supply increased 17.2% over a year ago, and M1 money supply increased 13.6% from a year ago.



Source: People’s Bank of China

As far as growth rate is concerned, it has slowed considerably in the latter half of 2010.  The growth rate in 2009 and early 2010 was the result of the overly loose monetary policy in response to the great financial crisis.  The growth rate once hit 30% level, which would undoubtedly be inflationary.  Now the growth rate is more in-line with the pre-crisis average level (green line), but that was by no means a slow growth.  It has also reported that new loans extended by Chinese Banks reached 1.11 trillion Yuan, with 1.04 trillion Yuan loans and US$13 bn worth of foreign currencies loans.  The amount of loans extended was smaller than the January of last year, in which 1.42 trillion Yuan loans were extended.

Although money supply growth and new loans growth is slower now than in 2009 and 2010, it is by no means a “slow” growth.  I mentioned in the past that even in the high inflation period in the late 1970s and early 1980s, the money supply growth is hardly as fast as what we are seeing in China. 


Source: People’s Bank of China

I maintain that China will have to bring the M2 growth to at least a low double digit area in order ease the inflationary pressure.  That will require higher interest rates and possibly higher reserve requirement ratio.  Although tightening too aggressively will likely bring a significant slow down to the economy, and the Chinese authority is worried about slowdown as much as inflation and asset bubbles.

And as a reminder, earlier today we have had the consumer price index of China released.  Here is my take on the latest inflation number of China, and the comments on reweighting the consumer price basket.

China: Monetary Statistics for January
Also sprach Analyst – Investment Analyses, World Economy & Finance

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