Money supply exceeds target

China's broad
measure of money supply, M2, which covers bank deposits as well as cash in circulation,
rose 20.8 per cent year -on-year in June. Money supply growth has exceeded the central
bank's 18 per cent target every month this year and the bank described the 20.2 per cent
climb in May as 'rather high', indicating that it might take steps to curb bank
lending.
A Chinese economist at Deutsche Bank told Bloomberg that the primary
trigger for money supply growth was the accumulation of foreign exchange reserves and
that if the central bank did not tighten monetary condi-tions, China ran the risk of high
inflation for the rest of the year. Consumer prices rose in January for the first time in more
than a year, and have been climbing ever since, rising 0.7 per cent from a year earlier in
May.