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Money supply indicators down: central bank

“Negative M1B growth suggested domestic investors were still cautious about the equity outlook and would rather save their money in time deposits.”

— Citi Investment Research statement

Growth of the nation’s money supply was slower last month than the previous month, reflecting a weaker stock market and the continuing outflow of net foreign capital, the central bank said in a statement released yesterday.

As one of the measures of monetary aggregates showed the lowest growth in seven years and signaled that weak investor sentiment had dealt a serious blow to local equities, economists said the central bank might avoid aggressive interest rate hikes at its next board meeting in September.

The M2 money supply indicator rose 1.7 percent last month from a year earlier, after the broadest measure of the nation’s monetary aggregates grew 2.34 percent in May, the central bank’s latest tallies showed.

M1B, another money supply gauge that includes currency held by the public and deposit money, registered a 3.04 percent decline last month from a year earlier, following a drop of 1.14 percent in the previous month.

M2 includes M1B, time deposits, time savings deposits, foreign currency deposits and mutual funds.

The central bank’s data indicated that the decline in the M1B last month was the weakest since July 2001, indicating that a substantial amount of capital had been moved from stocks after the benchmark TAIEX dropped 1,095.54 points, or 12.71 percent, within a month.

“The deceleration was the result of light trading volume in the equity market and continuous net outflow of foreign investors,” Cheng Cheng-mount (鄭貞茂) and Tina Liao, economists at Citi Investment Research, wrote in a research note released yesterday. “M1B growth in particular has reached a seven-year low.”

For the first half of the year, M2 supply grew 1.73 percent year-on-year, while M1B rose 1.44 percent over the same period, the bank’s data showed.

Neither last month’s M2 growth rate nor that for the first half fell within the central bank’s target range of 2 percent to 6 percent, even though the monetary authority decided last month at its quarterly board meeting to lower its growth target from between 3 percent and 7 percent — set earlier this year— to reflect the liquidity situation.

Commenting on the latest money supply data, both Cheng and Liao said that rising inflation and slower money growth momentum would leave the central bank little room for further rate hikes.

“We expect just one more rate hike in September. Negative M1B growth suggested domestic investors were still cautious about the equity outlook and would rather save their money in time deposits,” they wrote.
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