Inflationary pressure may climb as China central bank urges flexibility in policies (2)

09:28, June 19, 2010      

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The central bank report said China would maintain its moderately relaxed monetary policy in 2010, projecting for this year a 17 percent increase in broad money supply (M2), which covers cash in circulation and all deposits.

Central bank vice governor Su Ning earlier said a 17 percent year on year increase in China's broad money supply, and a targeted 7.5 trillion yuan in new loans for this year, indicated a relatively relaxed monetary policy.

Additionally, China's M2 had increased 21 percent year on year to 66.34 trillion yuan by the end of May, according to PBOC data.

The central bank said in the report it would work to control the pace of credit growth, maintain the balance of credit, and avoid apparent fluctuations.

The central bank also said a differentiated credit policy should be carried out to optimize the nation's credit structure.

Specifically, more credit support should be made available for agriculture and small and medium-sized companies, which traditionally face difficulties in obtaining financing.

Favorable credit policies should also be implemented to support underdeveloped sectors, employment, strategically important industries such as new energies, new materials, and energy savings, while strict credit controls should be imposed upon energy-consuming and polluting

industries and those with overcapacities, according to the report.

Steady Progress of RMB Exchange Rate Reform

The PBOC said China was to steadily continue market reforms of exchange rates and improve the RMB (Chinese currency) exchange rate formation mechanism.

Further, principles of independent decision-making, controllability and graduality should be enacted in improving the mechanism, according to the report.

The central bank would also work to make trade and investment more

convenient by promoting the yuan settlement in cross-border trade.

China previously signed a number of bilateral currency swap agreements with countries such as the Republic of Korea, Malaysia, Belarus, and Indonesia.

Source: Xinhua
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