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IMF hails China's monetary adjustment

By Chen Jia, Wang Xiaotian in Beijing and Shan Juan in Nanchang, Jiangxi (China Daily)

10:28, June 09, 2012

China's timely adjustment of monetary policies to stabilize growth and its strong determination to support higher quality growth has won applause from international economists, who are looking forward to a faster reform process to contribute to the rebalancing of the world's economy.

"We support the authorities' ongoing effort to promote higher quality growth while at the same time fine-tune macroeconomic policies to help ensure that growth does not slow too much," International Monetary Fund First Deputy Managing Director David Lipton said on Friday.

Lipton made the comments after a meeting with Vice-Premier Wang Qishan and a discussion with People's Bank of China Governor Zhou Xiaochuan.

As the downside risks are becoming more significant in European economies, which threatens China's economic outlook, the country has space for a "forceful response" but the main line of defense this time should be "on-budget fiscal stimulus", according to Lipton.

He said these measures should include raising household incomes, liberalizing the financial system and strengthening the social security system.

On Thursday, the central bank announced a lowering of the benchmark one-year interest rate by 25 basis points, the first cut since December 2008, to combat a further slowdown while the Europe's debt crisis threatens global growth.

Meanwhile, the central bank said the discount lenders can offer on the key lending rate had been increased from 10 percent to 20 percent, and banks can offer savers deposit rates up to 10 percent higher than the benchmark

Lipton said that was a milestone in China's interest rate liberalization process.

"That will lower the cost of financial intermediation and allow market forces a greater role in pricing loans," he said.

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