PBC sticks to moderately loose policy

08:51, July 12, 2010      

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The slowdown in China's money supply growth and new lending shows that the government's tightening measures are starting to take effect.

But with the economy facing a potential doubledip, decisionmakers at the People's Bank of China (PBC) will be more likely to maintain a moderately loose fiscal policy.

The money supply (M2) by the end of June had increased by 18.5 percent. The growth had, however, lost 2.5 percentage points from May and 9.2 percentage points lower than December.

The new lending in the first six months was 4.63 trillion yuan ($$682.89 billion), 2.74 trillion yuan ($364.31 billion) less year-on-year.

The slowdown is the result of China's efforts to curb inflation, tighter property policies, and new limits on the rampant lending to local government financing vehicles to prevent bad debt buildup.

However, the economy also showed signs of slowing down because of the lack of credit. The Purchasing Managers Index, a measure of manufacturing productivity, fell for the second consecutive month to 52.1 in June. The stock market also plunged to a 15-month low, and inter-bank market rates rose, suggesting tightening liquidity.

The weighted average inter-bank one-month interest rate in June was 2.31 percent, 0.64 and 1.06 percentage points higher than May and December respectively.

The PBC will maintain a moderately loose monetary policy, according to the monetary policy committee's second quarter meeting held last Thursday.

The central bank might inject greater liquidity by open market operations, said Guo Tianyong, professor of finance with the Central University of Finance and Economics.

By the end of last week, the central bank had injected 900 billion yuan ($132.74 billion) through open market operations for seven weeks in row.

Meanwhile, the banks will be encouraged to finance new projects rather than focusing on property and local government-backed infrastructure projects, Guo said.

Source: Global Times


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