China's foreign exchange reserves breach $1.2 trillion

China's foreign exchange reserves breached $1.2 trillion in the first quarter after a record quarterly jump, but money supply growth eased slightly in March in response to a government tightening campaign.
The central bank said on Thursday that reserves had swollen by $135.7 billion to $1.202 trillion between January and March, more than half the $247.3 billion reserves accumulation for the whole of 2006.
Analysts said the quarterly jump, which will have intensified upward pressure on the yuan, had confounded expectations, given a narrowing in the country's trade surplus in the first three months.
"It is a bit strange because there was a huge gap between the FX reserve increase and the size of the trade balance in the first quarter," said Jun Ma, an economist for Deutsche Bank in Hong Kong. "Implication-wise, it certainly continues to put pressure on the currency despite the significant drop in the trade balance in March."
The record quarterly rise in reserves followed increases of $78.4 billion in the fourth quarter, $46.8 billion in the third and $66 billion in the April-June period of last year. The reserves grew by $44.7 billion in March and $52.7 billion in February, the central bank said in a statement on its Web site (www.pbc.gov.cn).
China's reserves have ballooned in recent years as the central bank, in order to hold down the yuan, has bought most of the dollars generated by a growing trade surplus, inflows of foreign direct investment and speculative capital.
China's trade surplus narrowed to $46.44 billion in the first quarter, compared to $67.75 billion in the final three months of 2006. The central bank has been trying to do just that by raising interest rates three times and raising the amount that lenders have to hold back in reserve six times in the past year.
Annual growth in the broad M2 measure of money supply slowed in March to 17.3 percent from 17.8 percent in February, the central bank said. Annual loan growth also eased to an annual 15.7 percent in March, down from 16.6 percent in February.