China's central bank keeps interest rates stable

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Last updated at: (Beijing Time) Thursday, September 18, 2003

China's central bank keeps interest rates stable

China's central bank Wednesday expressed pronounced worries about the rapid growth in the nation's money supply, but insisted it would keep interest rates on deposits and loans "basically stable."

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China's central bank Wednesday expressed pronounced worries about the rapid growth in the nation's money supply, but insisted it would keep interest rates on deposits and loans "basically stable."

It also said it will keep the exchange rate of the yuan generally unchanged but will improve the exchange rate determining mechanism.

The third-quarter meeting of the People's Bank of China's Monetary Policy Committee concluded that "although the new phenomena in the economy now are still up to further observation, credit growth is obviously on the fast side," the bank said in a press release.

Chinese financial institutions carved out 2.1 trillion yuan (US$253 billion) in renminbi loans in the first eight months of the year, far outstripping the total lendings of 1.84 trillion yuan (US$221 billion) for all of last year.

Driven by the rapid loan rises, M2, the broad measure for money supply that covers cash in circulation and all deposits, soared by 21.6 per cent on a year-on-year basis to 21.06 trillion yuan (US$2.5 trillion) at the end of August, the fastest pace since May 1997.

The money supply growth has been hovering at levels a few percentage points above the 17 per cent target this year, leading to inflationary fears within the central bank.

Coupled with fast fixed asset investments which the National Bureau of Statistics said yesterday soared by 30.7 per cent on a year-on-year basis to 361.1 billion yuan (US$43.5 billion) in August, rapid money supply growth fuelled worries about overheating in the economy.

The bank announced last month it would raise required reserves at commercial banks to 7 per cent of their total deposits, from 6 per cent currently.

The move is widely estimated to be able to freeze some 600 billion yuan (US$72 billion) in money supply.

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