2014-10-16

Credit Remained Tight in September; Weaker Yuan a Risk

IF you take the PBOC's math, M2 is up 12.9% from last year, but if compare September's M2 figure to last September's, growth is actually 11.6%. Here's the chart of yoy growth in M1 and M2, versus the Shanghai Composite Index level.

Here is total social financing:

Forex reserves indicate the yuan weakness in possible here. China Sept data shows loan recovery but weak investment, forex outflows cloud picture
China's foreign exchange reserves, the world's largest, fell slightly to $3.89 trillion at the end of September from $3.99 trillion at the end of June, central bank data showed.

Periods of yuan weakness have generally coincided with flat or falling forex reserves. Early in October, the offshore yuan (CNH) tumbled briefly in Hong Kong. The exchange rate has since come back in line with the onshore rate (CNY), but the PBOC may be forced to spend dollars to keep CNH inline with CNY.

There's no data for July and August yet, but this shows that FX reserves are seeing another rapid growth slowdown. The last big slowdown from 2011 to 2012 was a period with two yuan sell-offs in HK.

The Informational Power of the Offshore Yuan Exchange Rate

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