China's M2 Money Supply Rose 7.7% Annually in July as M1 Expanded by 4%

China's broad money supply (M2) recorded an annual growth of 7.7% during July, while the narrow money supply (M1) expanded by 4%, reflecting the People's Bank of China's continued easing approach.

This growth in money supply comes in line with a series of easing measures taken by the People's Bank of China recently, from cutting interest rates to reducing reserve requirement ratios to stimulate the economy.

The gap between M2 growth and M1 growth indicates that liquidity is accumulating in time deposits rather than flowing into the real economy, hinting at cautious spending by companies and individuals despite the availability of liquidity.

Analysts believe the main challenge for the People's Bank of China lies in converting this abundant liquidity into real demand in the economy, amid weak consumer confidence and a declining real estate sector.

What do these terms mean?

M2 (Broad Money Supply): A measure that includes currency in circulation, demand deposits, time deposits, and savings deposits, and serves as a primary indicator of liquidity volume in the economy.

M1 (Narrow Money Supply): A narrower measure that includes only currency in circulation and demand deposits, reflecting the readiness of individuals and companies for immediate spending.

Monetary Easing: A policy pursued by the central bank to increase the money supply and lower interest rates to stimulate the economy and encourage lending and spending.