Money supply and lending growth continued their downward spiral in September,
a sign that the government's tight monetary measures are working.
The broad M2 money supply, which covers cash in circulation and deposits,
grew 16.83 per cent in September from a year earlier, down from a 17.9 per cent
growth in the previous month, according to figures released by the central bank
It was up 18.4 per cent in July from a year earlier.
Local currency loans climbed 15.23 per cent last month from a year earlier,
continuing a decrease in the growth rate in the last two months.
They grew 16.3 per cent in July, slowing slightly to 16.1 per cent in August.
"Both money supply and lending growth slowed in the third quarter, indicating
that the macro controls in the financial field are taking effect," the People's
Bank of China said in a report.
The central bank has twice raised banks' reserve ratio requirements. The
money commercial banks are required to deposit in the central bank to curb their
lending capacity and interest rates this year.
In addition, the central bank has issued a series of administrative
directives and used "window guidance" to restrain banks from loose lending.
The new figures may mean the possibility of further tightening reforms is
becoming more remote at least in the short term, said economists.
"Slower money and credit growth in September confirms that the near-term
risks of further policy tightening have been reduced," the Hong Kong branch of
investment bank Goldman Sachs said in a note to its clients.
The bank also downplayed concerns over the slowing money supply and loan
growth's impact on economic growth.
"We do not take the softer money and credit data as indicating risks to
growth, given the buoyant performance of the domestic equity market and lower
market interest rates," said the bank.
Fuelled by the swelling foreign trade surplus and inflow of foreign
investment, China's foreign exchange reserves, already the world's largest,
soared by US$46.8 billion in the third quarter of 2006, reaching US$987.9
billion, the central bank said on Friday.
They had increased by US$66 billion in the second quarter and US$56.2 billion
in the first quarter.
China's foreign trade surplus hit US$15.3 billion in September, the second
highest monthly record in the first three quarters, according to statistics
released by the General Administration of Customs.
The ballooning foreign exchange reserves have taken the blame for the growth
of money supply, with the central bank issuing extra additional money to mop up
the excess US dollars in the market, resulting in excessive liquidity in the
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