Money supply surges as banks change more in first month of year than in all of 2012
By staff reporter Li Yuqian
From http://english.caixin.com/
(Beijing) – Money supply to the market resulting from foreign exchange being converted to yuan at banks surged in January, data from the central bank shows.
The bank uses funds outstanding for foreign exchange to estimate the amount of yuan put into the domestic market equivalent to foreign exchange taken in by all banks during the same time. Traditionally, the funds have been a major component in the country's total money supply.
In January, the figure grew by a record 683.7 billion yuan, exceeding the combined amount of the previous 12 months, which totaled 500 billion yuan.
That increased capital available in the market and helped reduce the yield of seven-day repurchase agreements by 112.4 basis points to 3.189 percent.
The second largest single-month change in the funds was 525.1 billion yuan in April 2008. The third largest was 519 billion yuan in October 2010.
Li Huiyong, chief analyst at Shenyin & Wanguo Securities, said the January surge was mainly because foreign investors channeled their investment to China in search of better returns. Looking forward, he said, there might be fluctuations in the value of the U.S. dollar, which would cause frequent cross-border capital flows. That would lead to wide fluctuations in the amount of funds outstanding for foreign exchange.
The funds would grow by 2 trillion yuan this year, Li predicted.
Expectations for continued yuan appreciation also contributed to the fund's growth in January, said E Yongjian, an analyst at Bank of Communications. The fund is unlikely to keep growing so rapidly for the rest of 2013, he said.
Everbright Bank analyst Sheng Hongqing predicted the fund to grow by around 400 billion yuan in February.
Research from China International Capital Corp., an investment bank, said the growth in funds outstanding for foreign exchange has largely reduced the likelihood for the central bank to lower banks' reserve-requirement ratio.
By staff reporter Li Yuqian
From http://english.caixin.com/