China's broad M2 money supply rose 18.3 pct year-on-year to 29.24 trln yuan at the end of November, the highest growth rate since April last year, the People's Bank of China said.
In a statement posted on its website, the central bank said the narrower M1 money supply rose 12.7 pct year-on-year to 10.41 trln yuan, with M0, a measure of the cash in circulation, up 10.9 pct at 2.24 trln yuan.
The central bank has raised its M2 growth target for this year to 17 pct from 15 pct previously.
The official stance is that this is not a significant breach of the central bank's target. From China Daily:
"The rise of M2 is triggered by the growing momentum of residents' savings and enterprises' deposits," the central bank said. "Overall, the growth pace of the money supply is in line with the current economy and prices."...
"The growth rate of M2 is moderate, suggesting steady economic development," Wang Yuanhong, an economist with the State Information Center (SIC), told China Daily.
But, according to some, this news may reflect deeper issues with maintaining the yuan-dollar peg. From the Wall Street Journal (subscription required):
Yesterday's data on money supply coincided with data showing that consumer-price inflation remained mild in November, but economists said increased liquidity could boost inflation in coming months.
A looser currency policy could ease this pressure and slow inflows to the country, they said...
Efforts to limit the rise in the yuan were a key cause of the expansion in money supply, economists said.
Government officials do not beg to differ. From the Wall Street Journal (page A2 in today's print edition):
Senior Chinese officials said the value of the yuan will be increasingly influenced by the market and that the trend is for China's currency to appreciate over time.
The remarks by a senior official at the People's Bank of China, the country's central bank, and another at a key party organ of the ruling Communists jibe with a market outlook for more yuan strength in 2006, and are likely to keep alive speculation that the next move by China will be to widen the dollar-yuan trading band.
In general, an exchange rate that isn't allowed to appreciate could risk igniting inflation, said Yu Yongding, a member on China's central bank's policy committee...
Mr. Yu said liquidity in the domestic banking system is ample and a rising yuan would help ease sterilization pressure on the central bank. He also suggested reducing the weight of the U.S. dollar in China's currency basket to give the yuan more flexibility.
Don't necessarily expect the end of the measured pace of yuan appreciation, though:
Chinese Premier Wen Jiabao, at the annual summit of Southeast Asian leaders in Malaysia, reiterated that China took into account domestic, regional and world economic and financial stability when carrying out its foreign-exchange changes and said, "We will continue to do so in the future."
The Skeptical Speculator picks up this story as well (as long as good news from Japan), and has an earlier post on the latest Chinese inflation report. Hat tip to Erkin Sahinoz and Mike Bryan for bringing these stories to my attention.