03.27.2001
Money supply continues to shrink in February

• M2 was up 5.87% YoY in February, close to the lower limit of the Central Bank's 2001 target growth range of 5-10%. This represents a decline from 6.8% growth in January.

• Sluggish loan growth continued to depress M2 growth. Total loan growth registered 3.1% in February, while loan growth to the private sector contracted 0.3% as banks continued to be reluctant to extend loans to avoid exacerbating the bad loan situation.

• M1b growth declined 4.15% YoY last month, down from 0.1% growth in January, while M1a shrunk 7.6% YoY following January's 0.1% rise. In previous cycles, where M1b growth fell below M2 growth, the M2-M1b growth differential peaked at 10-11 percentage points.

• With US interest rates falling, foreign currency deposit growth has moderated in 2001 after reaching historic highs in 4Q00. In February, on-shore total foreign currency deposits reached NT$1.121t, down 3.2% MoM but still up 81.7% YoY. Also, as the domestic monetary situation continues to ease and interest rates continue to decline, we expect funds to slowly start flowing into demand deposits from time deposits.

• M1b, the narrower money measure, does not include foreign currency and time deposits (included in M2). With growth in foreign currency deposits and time deposits expected to slow, we anticipate M1b growth to turn around soon. We feel M1b growth is likely to bottom out in 1Q01.

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