Last month's hastened growth of money supply and the accelerated growth of bank loans have triggered concerns that further tightening measures could be put in place to rein in inflation and asset price rises.

 

The People's Bank of China said yesterday the broad measure of money supply, or M2, increased by 18.5 percent in October, slightly more than in September. M2 includes cash and all deposits, and is an indicator of the overall amount of money in the market.

 

M1, or the narrow measure of money supply, which includes cash and demand deposits, increased by 22.2 percent in October year-on-year, a 0.14-percentage point increase over September.

 

"The indices show that liquidity remains ample in the market," senior economist with the State Information Center Hu Shaowei told China Daily.

 

Household bank deposits fell to 506.2 billion yuan in October, the central bank said, citing demand for new initial public offerings.

 

New yuan loans in October were 136.1 billion yuan, compared with 283.5 billion yuan in September and 302.9 billion yuan in August.

 

Banks extended 3.50 trillion yuan in new loans during the January-October period, compared with 3.36 trillion yuan in the first nine months.

 

Although the monthly increase in loans dropped, credit remains at a high level, which will contribute to the investment boom, Hu said.

 

Li Zhikun, analyst with the Beijing-based China Jianyin Investment Securities, said that before, bank loans had stoked the fires of investment, but this year, it seems much of the money has gone to the capital or real estate markets, which increased assets prices.

 

Given the expected high consumer price index for October and the released money supply figures, an interest rate hike could be imminent, he told China Daily.

 

(China Daily November 13, 2007)