M2 money supply growth rate hits record low in June

The China Post staff

The record low annual increase rate in bank lending and investments in June pulled down the M2 money supply growth rate to another record low of 3.75 percent from the same month of last year, according to the latest statistics released by the Central Bank of China (CBC). The M1A and M1B growth rates stood at 10.9 percent and 20.37 percent, respectively, in the same month. Chrystal Shih, chief of the CBC’s Department of Economic Research, said banks’ lending and investments fell by 2.12 percent in May. But the decrease increased to a new record of 3.54 percent last month. She attributed the shrinking lending and investments by banks to the repayment of short-term debts of NT$58.5 billion owed to the banks by the government. The reduction in the banks’ holding of government bonds and the active investment in bond repurchases by investors also slashed NT$54.3 billion worth of government bonds held by the banks. Another key reason for the low M2 growth rate in June was the 6.09 percent growth rate of bond funds, as more investors chose bond funds to cope with the continuously falling interest rate on deposits. She said the sustained fast growth in bond funds had not only replaced a portion of deposits at banks but had

also induced more enterprises to float bonds on the domestic and overseas markets. This in turn restrained the growth of M2 money supply. Securities financing also dropped NT$19.3 billion in response to the weak stock market. Funds acquired by the non-banking sector rose 2.71 percent from June last year when the lending and investments by life insurance firms, the investments of trust companies and the sales of overdue loans and writeoffs of bad loans by financial institutions are included. Shih acknowledged the lackluster performance of the financial indicators, although some economic research organizations have revised upward Taiwan’s gross domestic product (GDP) rate.

She said the GDP expansion is directly related to financial indicators such as bank loans and investments in the private sector. However, she said, there is normally a time lag of one to three quarters between the GDP and the financial indicators.