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BIZCHINA> Center
Money supply growth speeds up in May
(Xinhua)
Updated: 2008-06-13 11:48

China's money supply growth gained momentum in May, adding pressure to the appreciation of the yuan, which set a new high against the US dollar on Thursday.

The broad measure of money supply, M2, which covers cash in circulation plus all deposits, reached 43.62 trillion yuan ($6.23 trillion) at the end of May, up 18.07 percent from a year earlier, the People's Bank of China (PBOC) said on Thursday.

The increase was 1.13 percentage points higher than that of April and a 1.78 percentage-point rise from the end of March.

The accelerated growth was expected to force the yuan to go up more quickly and further test government efforts to curb inflation, analysts said.

The central parity rate of the yuan was set at 6.9015 against the US dollar on Thursday, breaking the 6.91 mark for the first time since it was de-pegged from the greenback in July 2005.

The yuan has risen more than 5.5 percent against the US dollar so far this year as soaring oil prices weakened the US dollar and drove up non-dollar currencies.

Meanwhile, the statistics bureau said Thursday the consumer price index (CPI), the main gauge of inflation, rose 7.7 percent year-on-year in May.

It fell from 8.5 percent in April and a 12-year high of 8.7 percent in February but was still much higher than the government's annual target of 4.8 percent.

"The CPI drop was within expectations but inflationary pressure will remain a big issue in the economy," said Guo Tianyong, head of the Central University of Finance and Economics banking research center.

The rate of increase in the CPI could gradually slow if price rises are effectively controlled, but it would be difficult to keep the annual increase around 4.8 percent, said Guo.

At the end of May, the narrow measure of money supply, M1, was up 17.93 percent to 15.33 trillion yuan, according to the central bank.

Outstanding local-currency loans increased 14.86 percent to 28.29 trillion yuan and those in foreign currencies surged 55.39 percent to $273.9 billion.

The PBOC announced on Saturday it would order lenders to set more money aside by raising the reserve-requirement ratio by 0.5 percentage point on June 15 and another 0.5 percentage points on June 25.

"Generally the biggest risk for the macro-economy is still the pressure for full-scale price rises," said the central bank's financial research institute in a statement earlier this month.

Household local-currency deposits jumped by 236.9 billion yuan in May, compared with a fall of 278.4 billion yuan a year earlier.

Foreign-currency deposits slumped by $2.1 billion, in contrast to an increase of $4.8 billion last May, said the central bank.


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