China’s money supply growth slowed in June as the central bank ordered lenders to set aside larger reserves and the trade surplus narrowed.

M2, the broadest measure of money supply, rose 17.4 percent to 44.31 trillion yuan (US$6.49 trillion) from a year earlier, the People's Bank of China said on monday on its Website, after gaining 18.1 percent in May.

New yuan lending added 2.45 trillion yuan in the first half, down 89.9 billion yuan from a year ago. In June, yuan loans grew 332.4 billion yuan, down 119 billion yuan.

The outstanding value of yuan loans rose to 28.62 trillion yuan at the end of June, up 14.12 percent from a year ago. The growth is down 0.74 percentage point from a month ago and down 1.98 percentage points over the level at the end of last year.

"The decreasing money supply growth showed that inflation pressure is likely to ease in the future," Lu Zhengwei, an Industrial Bank chief economist said yesterday.

Forex reserves

China's foreign exchange reserves surged 35.73 percent to US$1.8 trillion as at the end of June. Foreign exchange reserves increased US$280.6 billion in the first half, up US$14.3 billion year on year. In June alone, Foreign exchange reserves gained US$11.9 billion, down US$28.1 billion.

The nation's trade surplus remains one of the main sources of inflows of money but it has narrowed 21 percent in June from a year earlier to US$21.4 billion.

"The monetary figures indicated that there's no push for interest rate increases in July. But it is likely the central bank will increase the reserve requirement ratio once again, likely between July 25 and August 10," Lu said.

The central bank has already increased the reserve requirement ratio to a 23-year high of 17.5 percent - the fifth time this year the ratio has been raised.

Deposits grew due to the sluggish stock and property markets. More money is expected to flow back to bank accounts in the near future with no sign seen in a big rebound in the two markets, analysts said.

The Shanghai Composite Index has lost half of its value so far since it reached a record high in October.

Total deposits at all financial institutions grew 17.84 percent to 45.02 trillion yuan, up 17.84 percent from a year ago. Yuan deposits rose 4.96 trillion yuan in the first half, up 1.58 trillion yuan over a year earlier.

(Shanghai Daily July 15, 2008)