Central bank rejects money supply ‘death cross’

  • By Crystal Hsu / Staff Reporter

The country’s broad M2 money gauge rose last month faster than the narrow M1B indicator, resulting in the first “death cross” in four years, the central bank said yesterday.

The phenomenon occurs when people start putting money aside and opt for the security of time deposits to weather economic uncertainty.

However, the monetary policy official had a different interpretation, saying the latest moves in M1B and M2 stemmed from continued capital outflows, as well as slowing investment and loan demand.

Photo: Chen Mei-ying, Taipei Times

M1B refers to cash and cash equivalents while M2 encompasses M1B, term deposits, term savings deposits, foreign currency deposits and mutual funds.

“There is no need to overreact, as there is still enough liquidity in the market to support economic activity, despite a slowdown in both measures,” the central bank said.

Data on time deposits and foreign currency deposits have little to do with TAIEX performance, he said, adding that foreign currency deposits were up 15.23 percent from the previous year, although they were down from a 17.64% recovery in June.

Securities accounts, a gauge of confidence widely used by retail investors, rallied above NT$3.1 trillion ($102.4 billion), although margin balances fell to a low 19 months of NT$248.3 billion, the central bank said.

Indeed, the TAIEX weakened to 13,951 points on July 12 due to Chinese military exercises in the Taiwan Strait, putting selling pressure on margin traders.

The National Stabilization Fund then stepped in and helped restore confidence, the central bank said.

It is too early to pass judgment on a recovery in equity investment as securities accounts received a significant boost from NT$950 billion in cash dividend payouts last month, the central bank said. , adding that the factor would continue to affect the overall balance this month. .

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