I. Monetary Aggregates Grew Steadily



 

At end-June, outstanding M2 stood at RMB 163.1 trillion, up 9.4 percent year on year, representing a deceleration of 1.2 percentage points from end-March. Outstanding M1 stood at RMB 51.0 trillion, up 15.0 percent year on year, a deceleration of 3.8 percentage points from end-March. Outstanding M0 was RMB 6.7 trillion, which represented a year-on-year increase of 6.6 percent. On a net basis, the PBC withdrew RMB 132.6 billion during the first two quarters of the year, anincrease of RMB 92.8 billion from the same period of the last year.The M1-M2 margin posted 5.6 percentage points, continuing its narrowing trend since last August.

 

It is important to comprehensively and objectively understand the recent slowdown in M2 growth. First, because the strong M2 expansion that formerly outpaced nominal GDP growth was closely related to the monetization in housing and other sectors, liquidity demand weakened after the share of commercial residential housing reached a very high level. Second, the strong M2 growth in recent years had also been supported by the financial deepening, as reflected in the rapid development of inter-bank financial activities and wealth management businesses. Progress in financial deepening does not follow a linear path; rather it is subject to ups and downs as a result of regulatory efforts to address associated risks. A moderating M2 growth reflects the impact of measures taken to strengthen financial regulation, shorten financing chains, and reduce layers in the financing structure. A slower M2 growth is expected to become the new normal as the deleveraging proceeds and the financial sector places a greater focus on serving the real economy. In the meantime, as money supply is now influenced by more complex dynamics due to the deepening of the financial market and financial innovation, it has become increasingly difficult to measure and control M2, which is less relevant to economic development. It is thus not necessary to place too much focus on M2 changes.

 

Base money totaled RMB 30.4 trillion at end-June, which represented a decrease of RMB 304.8 billion from the beginning of the year. The money multiplier was 5.37, which was 0.08higher than that at end-March. The overall excess reserves ratio of financial institutions was 1.4 percent, and that of rural credit cooperatives was8.1 percent.

 

Figure 1 Growth of Money Supply

Source: People’s Bank of China

 

Box 1Understanding Changes in the Excess Reserves Ratio

 

Excess reserves are funds deposited by financial institutions in a central bank in excess of the required reserves, mainly as back-up funds for payments, clearing, liquidity position management, or asset allocations. They are measured by the excess reserve ratio, which is the share of a financial institution’s excess reserves in its general deposits. As a key component of the monetary base, excess reservesare the most liquid assets for financial institutions. The size of the excess reserves and their ratio are critical indicators of financial institutions, which, to some extent, reflect their liquidity position. First, under the reserve requirement, banks must increase their required reserves by drawing on liquidity (i.e., excess reserves) to sustain their deposit growth, as insufficient liquidity means they are not able to expand their assets. Second, at the individual level, banks must hold liquidity to meet demands for inter-bank flows, payments, and clearing. Banks must hold more liquidity for precautionary purposes in cases of money-market disruptions or weak payment technologies.

 

Source: Wind

 


Дата добавления: 2018-02-28; просмотров: 349; Мы поможем в написании вашей работы!

Поделиться с друзьями:






Мы поможем в написании ваших работ!