September 13, The People's Bank of China, the central bank, is studying broadening the calculation base for M2, a key gauge of money supply, to better reflect the latest developments in the financial market, China Business News reported on Tuesday.
On Monday the central bank said the increasingly diversified structure of public assets, especially the rapid development of off-balance-sheet credit and wealth management products this year, has accelerated deposit diversion from traditional savings products.
"These substituting financial products are not included in the current M2 calculation and have therefore led to underestimation," the central bank said on its website.
Analysts remarked that the move would help policymakers better understand the money supply and manage stubbornly high inflation.
M2 Measurements
The growth of M2 has retreated and stabilized since the beginning of this year, which is in line with government expectations and its prudent monetary policy stance, the central bank said.
"Although M2 growth showed moderation from the past, the real monetary conditions are in accordance with steady economic growth," it said.
China's M2 grew at its slowest pace in 7 years in August -- 13.5% -- from a year earlier, compared to a 14.7% year-on-year increase in July and an official target of 16% for this year.
"The monetary tightening policies implemented by the central bank are aimed at reducing money supply and taming fast-growing prices," Li Daxiao, director of Ying Da Securities' research department, was quoted as saying.
Fu Bingtao, a deputy director at Agricultural Bank of China's strategic management department, said the slowdown in M2 growth may result from a moderation of fiscal deposits -- new fiscal deposits in August shrank to RMB 101.5 billion from July's RMB 459.2 billion, according to official data.
The central bank attributed the moderation of fiscal deposits to deposit diversion as more financial innovation has led to an increasingly diversified structure of public assets, and that the exclusion of these substituting financial products in the measurements of M2 has caused underestimation.
China's M2 includes the narrower M1, personal savings, institutional time deposits and deposits at brokerages. M1 includes cash in circulation and institutional demand deposits.
Source:21cbh