02.27.2001
Liquidity conditions still ailing

• The broad money supply, M2, was up 6.8% YoY in January, within the Central Bank of China's (CBC) M2 target growth range of 5-10% for 2001. This follows growth of 6.7% in December last year and 7.0% for the full-year 2000.

• M1b growth tumbled to 0.1% YoY last month, following growth of 0.4% in December and 10.8% last year. M1b growth has been losing momentum since 2H00, when it fell below M2 growth in September 2000. The M2 - M1b growth differential now stands at 6.7 percentage points, compared to a peak of 11 percentage points in previous cycles where M1b growth fell behind M2 growth.

• We expect M1b growth to bottom out around June and liquidity conditions to subsequently start improving. With confidence in the stock market and the economy at a low ebb, M1b growth slowed down in 2H00 amid a fund shift into more attractive foreign currency and time-deposits.

• In January, for the first time since April 2000, foreign currency deposits fell from the previous month following a cut in US interest rates. Foreign currency deposits contracted 1.7% MoM, while the figure was still up an impressive 78.5% YoY to NT$1.16t.

• A gradual moderation in foreign currency deposit growth will also help boost M1b growth. However, M2 growth will continue to be held back by poor loan growth due to economic slowdown and banks' cautious attitude toward lending. Loan growth dropped to 0.02% in January from 1.7% the previous month, and saw 5.0% growth in full-year 2000.

IrmakSurenkok@Primasia.com +886-[0]2-2547-8873