BEIJING (XFN-ASIA) - China is likely to tolerate above-forecast levels of monetary growth, apparently accepting that the strong economy will lead to some of its economic targets being surpassed, Deutsche Bank said.
The People's Bank of China (PBoC) said M2 growth was 17.1 pct year-on-year in June, higher than the official 16 pct target, while that for yuan loan growth stayed at 16.5 pct.
"The PBOC states in its press release that money and loan growth rates 'are broadly consistent with economic growth', implying that it is likely to tolerate the current rates of monetary and loan growth... This increased tolerance reflects the recognition that GDP growth and inflation will be stronger than their earlier forecasts for 2007," Deutsche Bank economist Jun Ma said in a research note.
The PBoC also announced that foreign exchange reserves reached 1.33 trln usd by the end of June, up 42 pct from a year earlier.
"The second quarter increase in forex reserves was 131 bln usd, slightly slower than the first quarter's 136 bln usd, but remains very strong by most standards," Ma said.
Ma however does not see any significant change to monetary policies despite the strong figures.
" We continue to expect 2 to 3 more increases in the reserve requirement ratio, 1 to 2 rate hikes, and the use of special bonds as a new monetary policy tool in the second half this year," Ma noted.
Also, Ma said that a yuan appreciation should accelerate to a 5 to 6 pct annualized rate this year, against 3.4 pct a year earlier, with the bank recently changing its yuan/dollar forecast to 7.40 by the end of this year from the previous 7.45.
jianbo.wu@xfn.com
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