The People's Bank of China says the growing gap between the M1 and M2 money supply range in July does not indicate that the Chinese economy is entering a liquidity trap.
Growth in M1 supply, which includes cash and short-term deposits, accelerated to 25.4 percent in July. While M2 supply, which includes longer-term deposits, grew only 10.2 percent and raised concerns of a "liquidity trap."
The PBOC says M2 growth was distorted by a higher base of comparison boosted by money injections to calm stock market volatility in the second quarter of last year. The central bank says it is normal to see some fluctuations in monthly money supply and credit data, and there is no direct connection with the "liquidity trap" hypothesis.