Monday, April 12, 2010 - 06:03
China Q1 FX Reserves Rise On Hot Money; Loan Growth Moderates
BEIJING (MNI) - The pace at which new credit was extended by Chinese banks showed signs of moderating towards the end of the first quarter, while the country continued to add billions of dollars to its foreign exchange reserve pile amid widespread speculation about the resumption of yuan appreciation.
The People's Bank of China announced Monday that new loans in March fell back to CNY510.7 billion, bringing the total for the quarter to CNY2.6 trillion. That represents just over a third of the government's full-year target at around CNY7.5 trillion.
The volume of new lending tailed off as the quarter ended following aggressive moves by the government to bring the banking system into line. The March lending total was down from CNY700.1 billion in February and CNY1.39 trillion in January (the March tally compares with 2009's monthly average of CNY799.17 billion).
But it is smaller than the $113.28 billion average quarterly growth last year, although that ignores the impact of seasonal trends on foreign exchange reserve growth such as the Chinese New Year slowdown.
The quarterly tally compares with the CNY4.58 trillion lent out during January-March last year and the CNY1.33 trillion extended during the first three months of 2008.
The size of loans extended during the first quarter tends to overshadow those of the remainder of the year as banks typically front-load lending activity in order to maximize interest income.
Foreign exchange reserves increased by $47.93 billion during the first quarter, the central bank said, to $2.447 trillion at the end of March. They rose $22.493 billion last month alone.
The first quarter increase is significantly larger than the $7.71 billion recorded during the same period last year, though that was an anomaly caused by capital outflows as a result of the "flight to quality" and repatriation of funds which followed late 2008's global financial crisis.
It is smaller than the $113.28 billion average quarterly growth last year, although that ignores the impact of seasonal trends on foreign exchange reserve growth such as the Chinese New Year slowdown.
Given that the trade deficit of $7.24 billion and dollar strength (causing a negative valuation adjustment in non-dollar reserves) held down reserve growth in March, it appears that speculation that the government is ready to move to unshackle the yuan from its de facto dollar peg played a role.
Thus, the sharp increase in foreign exchange reserves in March -- compared to $9.37 billion in February and $16.06 billion in January -- could suggest increasing inflows of speculative "hot money" coming onshore to position for the expected resumption of appreciation.
The slowdown in bank lending saw a slight moderation in M2 growth, though a high base effect also likely played a role. M2 -- the broadest measure of Chinese money supply that the PBOC publishes -- rose 22.50% y/y in March -- the slowest monthly pace of growth since last February's 20.48%.
M1 growth fell back to 29.94% y/y from 34.99% in February.
China Q1 FX Reserves Rise On Hot Money; Loan Growth Moderates
BEIJING (MNI) - The pace at which new credit was extended by Chinese banks showed signs of moderating towards the end of the first quarter, while the country continued to add billions of dollars to its foreign exchange reserve pile amid widespread speculation about the resumption of yuan appreciation.
The People's Bank of China announced Monday that new loans in March fell back to CNY510.7 billion, bringing the total for the quarter to CNY2.6 trillion. That represents just over a third of the government's full-year target at around CNY7.5 trillion.
The volume of new lending tailed off as the quarter ended following aggressive moves by the government to bring the banking system into line. The March lending total was down from CNY700.1 billion in February and CNY1.39 trillion in January (the March tally compares with 2009's monthly average of CNY799.17 billion).
But it is smaller than the $113.28 billion average quarterly growth last year, although that ignores the impact of seasonal trends on foreign exchange reserve growth such as the Chinese New Year slowdown.
The quarterly tally compares with the CNY4.58 trillion lent out during January-March last year and the CNY1.33 trillion extended during the first three months of 2008.
The size of loans extended during the first quarter tends to overshadow those of the remainder of the year as banks typically front-load lending activity in order to maximize interest income.
Foreign exchange reserves increased by $47.93 billion during the first quarter, the central bank said, to $2.447 trillion at the end of March. They rose $22.493 billion last month alone.
The first quarter increase is significantly larger than the $7.71 billion recorded during the same period last year, though that was an anomaly caused by capital outflows as a result of the "flight to quality" and repatriation of funds which followed late 2008's global financial crisis.
It is smaller than the $113.28 billion average quarterly growth last year, although that ignores the impact of seasonal trends on foreign exchange reserve growth such as the Chinese New Year slowdown.
Given that the trade deficit of $7.24 billion and dollar strength (causing a negative valuation adjustment in non-dollar reserves) held down reserve growth in March, it appears that speculation that the government is ready to move to unshackle the yuan from its de facto dollar peg played a role.
Thus, the sharp increase in foreign exchange reserves in March -- compared to $9.37 billion in February and $16.06 billion in January -- could suggest increasing inflows of speculative "hot money" coming onshore to position for the expected resumption of appreciation.
The slowdown in bank lending saw a slight moderation in M2 growth, though a high base effect also likely played a role. M2 -- the broadest measure of Chinese money supply that the PBOC publishes -- rose 22.50% y/y in March -- the slowest monthly pace of growth since last February's 20.48%.
M1 growth fell back to 29.94% y/y from 34.99% in February.