13% M2 growth forecast "not too fast"

China's central bank governor Zhou Xiaochuan said here Tuesday the government has emphasized "not too fast" growth in the broad money supply (M2) this year although the country saw a 15.9-percent M2 expansion in January.

"The 13-percent expected M2 growth for 2013 is rather a forecast than a policy target," the governor of the People's Bank of China (PBOC) said on the sidelines of a panel discussion over a government work report.

The report was delivered by Premier Wen Jiabao Tuesday morning to the annual session of China's National People's Congress, China's top legislature. In the report, Wen said the government expects M2 to grow 13 percent in 2013.

The forecast growth is 0.8 percentage points lower than the actual increase last year and marks the lowest level since 2009, when the government began specifying the growth figures of M2, a broad measure of money supply that covers cash in circulation and all deposits, in its work reports.

The previous government work reports estimated M2 growth of 17 percent for both 2009 and 2010, 16 percent for 2011 and 14 percent for 2012.

China will maintain a proactive fiscal policy and a prudent monetary policy in 2013 to expand the economy by 7.5 percent and keep the inflation rate at around 3.5 percent, according to Wen.

The ultimate goal of a prudent monetary policy is to maintain price stability, as it usually means a relatively expansionary monetary policy when the economy turns sluggish or a relatively tight monetary policy when the economy shows signs of overheating.

Zhou said the forecast M2 growth in 2013 has been projected to emphasize that the year's broad money supply should not grow too rapidly, compared with previous figures.

China's broad money supply rose 15.9 percent year on year to 99.21 trillion yuan (about 15.8 trillion U.S. dollars) at the end January, compared with 10.4 trillion U.S. dollars of outstanding M2 in the United States, data from the Chinese and U.S. central banks showed.

Zhou explained China's M2 will expand relatively fast at the beginning of the year due to the New Year and Spring Festival.

"I can't tell whether we can achieve this year the expected 13-percent growth in M2 or not, it all depends on developments in the coming months," said 65-year-old Zhou.

Through its open market operations, the PBOC drained 910 billion yuan of liquidity from the banking sector last week, triggering speculation that the central bank may begin credit tightening.

Zhou Xiaochuan

Governor of People's Bank of China (PBOC)