Slow growth in M1B and M2 money supply: report

By Amy Su  /  Staff reporter

Tue, Jun 26, 2012 - Page 13

Continuing volatility in the domestic stock market might slow the annual growth rate in the M1B monetary aggregate this month, the central bank said yesterday.

M1B — a narrow measurement of money supply in circulation that includes currency and passbook savings deposits — rose 3.24 percent last month from the previous year, lower than the annual increase of 3.77 percent posted in April, the central bank said in its monthly report.

The broader M2 monetary aggregate — which includes M1B, time deposits, foreign currency deposits and mutual funds — increased 4.4 percent year-on-year last month, also slower than the 4.72 percent annual growth recorded in April, the report said.

“The slowing growth rates of both M1B and M2 last month were mainly due to lower expansion in bank loans and investments, as well as a net foreign capital outflow,” Chen E-dawn (陳一端), deputy head of the bank’s economic research department, told a press conference.

The US$3.3 billion net outflow of foreign capital was the major factor that inhibited last month’s growth in M1B and M2, Chen said.

Meanwhile, foreign-held New Taiwan dollar deposits dropped NT$7.8 billion (US$260.04 million) to NT$206.2 billion last month, the report’s data showed.

The faster decline in annual growth of M1B compared with that of M2 deepened the form of “black cross,” in which M1B growth falls below M2B growth, which indicates a temporary shortage of capital for the stock market over the near future.

Amid the persistent global economic uncertainties, the performance of the local stock market has remained volatile this month, raising the downside risk for the annual growth in the M1B money supply, Chen said.

The sharp month-on-month decline of NT$62.4 billion in outstanding balance of securities accounts, which marked the steepest drop since November last year, also reflected investors’ conservative attitude toward the stock market over the past few months.

On a monthly basis, the monetary aggregates M1B and M2 fell 0.25 percent and 0.01 percent last month, as many people withdrew money from their accounts to pay income taxes, the bank said.