MNI BRIEF: M2 Growth To Slow On Weak Demand - PBOC's Zou

China’s rapid M2 expansion will slow as credit demand weakens in line with the economy's transformation, while the central bank will promote a moderate rise in prices and prevent excessively low interest rates from worsening fund idleness, said Zou Lan, director of the monetary policy department at the People's Bank of China on Thursday in a briefing.

The PBOC will tighten control on idle funds cycling inside the financial system, Zou added, warning some enterprises have used low-cost loans to invest in wealth management products and time deposits, exacerbating the issue. (See MNI: PBOC Wary Of Rapid Long-dated CGB Yield Decline)

China’s credit demand has weakened as economic structural adjustment accelerates, particularly due to the changed supply-demand relationship in the real-estate market and strengthened efforts to control local-government debt, he said, noting the elevated CNY300 trillion M2 volume. (See MNI PBOC Watch: LPR To Hold, Idle Funds Targeted)

The current low level of prices is structural and cyclical, he added. The central bank will aim to keep nominal interest rates at a reasonable level to consolidate the positive trend of economic recovery and prevent excessively low rates from exacerbating cutthroat competition and fund idleness, which could lead to further price decreases, creating a vicious cycle, he continued.