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Money Supply Continues to Score “Golden Crossing”

Taipei, Dec. 26, 2012 (CENS)--With inward remittance of foreign funds boosting the amount of demand deposits at banks, the annual growth rate of M1B, money supply in narrower definition, advanced to 3.65% in November, while M2, money supply in broader definition, slipped to 3.26%, due to switch of funds to non-deposit products, such as insurance and mutual funds, reported the Central Bank of China (CBC) yesterday (Dec. 25).

This is the third month in a row for the annual growth rate of M1B to exceed M2, a phenomenon dubbed as “golden crossing,” which augurs well for the stock market, as the M1B consists of money supply with higher liquidity, ready for use in stock investments.

Chen Yi-tuan, deputy director of the economic research department of the CBC, noted that with the upturn of the economy, trade-related money demand will increase, leading to ample money supply which can fund stock investments.

Decline in the annual growth rate of M2 in November underscores the diversification of assets allocation by local people, according to Chen. In the first 11 months this year, average annual growth rates of M1B and M2 reached 3.32% and 4.22%, respectively.

In the wake of the appearance of “golden crossing” in September, Taiex Index shot up 414 points in November. In November, foreign funds scored net inward remittance of US$1.262 billion, boosting the NT-dollar deposits of foreigners by NT$2.1 billion to NT$202.9 billion.

Meanwhile, due to flow of funds into the stock market, the outstanding amount of securities fund transfer accounts dropped to NT$1.23 trillion in November, NT$5.5 billion lower than October. Banking managers believed that in view of the status of money supply, fund-supported stock market rally will continue into next year.

Meanwhile, the CBC reported yesterday that the total outstanding amount of deposits at financial institutions in the nation topped NT$33.19 trillion and the outstanding amount of foreign-currency deposits hit NT$2.81 trillion in November, both record highs.

Over the past one year, the scale of domestic deposits jumped NT$1 trillion, including increase of NT$643.7 billion for time deposits and NT$379.1 billion for demand deposits. The remarkable increase is attributed to the existence of ample domestic funds, inward remittance by overseas Taiwanese businessmen, and inflow of hot money.

(by Philip Liu)
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