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Chinese money supply growth dips in June, but economists confident

By Alexander Bueso

Date: Friday 10 Jul 2020

Chinese money supply growth dips in June, but economists confident

(Sharecast News) - Money supply growth in China cooled last month but some economists were confident that it would prove temporary.
The rate of money supply growth is a key and closely-followed determinant of nominal GDP growth.

According to the People's bank of China, the annual rate of increase in so-called M1 or 'narrow' money supply slipped from 6.8% for May to 6.5% in June, missing economists' forecasts for a print of 7.0%.

Analysts at Pantheon Macroeconomics however put the dip down to negative base effects, but were quick to add that a further acceleration from its recent highs was unlikely.

M2 money supply growth meanwhile was steady at 11.1%, as expected.

"The continued stability in M2 growth is encouraging from the standpoint of the economy's medium-term growth prospects. This probably will be as good as it gets for the rest of the year [...]," said Miguel Chanco at Pantheon Macroeconomics.

"The authorities earlier this year dropped their previous framework to keep M2 and nominal GDP growth in sync, as the latter collapsed in the wake of Covid-19.

"But that isn't the same as a readiness on their part to let M2 growth run riot. The PBoC's rhetoric has shifted notably, with Governor Yi Gang warning recently that markets needed to prepare for an "exit" from the Bank's policy loosening."

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