Broad money growth has touched record lows in China and remains weak in Japan. By contrast, India continues to have strong money expansion, money growth, driven by surging private sector demand for bank credit. In the UK and the Eurozone money growth is sluggish, but it has at least been positive in recent months. In the USA low money growth is dependent on monetization of the huge federal deficit. Growth in new bank credit remains weak, with banks seemingly anxious about a possible tightening of capital rules. Inflation is proving stubborn, delaying reductions in the Fed funds rate. Central banks everywhere can combat any emerging recessionary forces by cutting interest rates. (Tim Congdon)

USA

In the three months to April 2024, US M3 increased at an annual rate of 1.3%, the lowest reading since May 2023. Early indications are that money growth was negligible in May. Demand for new bank credit from the private sector has remained weak, with households deterred by the high cost of mortgage borrowing and banks nervous about the impact of new lending on their capital positions. Instead the dominant influence on money growth has been the financing of the Federal deficit. But in March and April the Federal budget, without seasonal adjustment, was in virtual balance, which may explain why money growth in the two months was so tepid. In late 2023 money market mutual funds grew strongly as they bought new government securities, but more recently banks as such have been more important. Inflation eased from 3.5% in the year to March to 3.4% in April, but still remains well above the Fed’s 2% target. Real money balances are still falling, but the Fed is unlikely to reduce the Fed funds rate while inflation remains stuck above the effective target of 2%. (Tim Congdon and John Petley.)

China

In the three months to April the annualised rate of Chinese broad money dropped from 7.4% to 5.9%. The annual rate also continues to decline, from 8.2% to 7.5%. Both these figures are the lowest in their respective series for at least 20 years. The People’s Bank of China has not reduced either banks’ cash reserve ratios or interest rates since February, but its previous actions anyhow did not spur stronger the growth of new bank credit. Its growth rate was unchanged at 9.6% in the year to April, the lowest reading since records began in 1998. This will result in slower growth of bank deposits and thus a continuation of sluggish broad money growth. The fading of money expansion seems to be having its impact the economy. House prices fell by 2.2% in the year to March, the weakest number since 2015. While April saw consumer inflation in positive territory for the third consecutive month, it was still only a meagre 0.3%. China’s economy grew at an annualised rate of 5.3% in Q1 2024, but the money numbers are consistent with an economy losing its former dynamism. (Note by John Petley.)