Wary on economy, China Central bank reaffirms policy

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Wary on economy, China Central bank reaffirms policy

BEIJING - China’s central bank on Wednesday restated its commitment to an accommodative monetary policy to ensure stable and fairly fast economic growth.

By (Reuters)

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Published: Wed 5 Aug 2009, 5:11 PM

Last updated: Thu 2 Apr 2015, 3:43 AM

In its monetary policy report for the second quarter, the People’s Bank of China said positive economic signs were multiplying thanks to the government’s energetic policy response to the global crisis.

But the bank said private investment remained weak, income expectations were subdued and it was hard to be optimistic about exports.

“The external economic environment is severe. Economic uncertainties still abound, and the basis for an economic recovery is not solid,” the PBOC said on its website.

Export orders had been rising since the start of the year, but that did not tell the whole story, it said.

“Export orders have been primarily small and short-term. Future uncertainties are quite great and the situation does not allow for optimism,” the PBOC said.

The report contained no indication that a credit crackdown, increasingly feared by some investors, was in the offing.

The PBOC said it would give closer guidance to banks, which lent a record 7.37 trillion yuan ($1,079 billion) in the first six months, but it pledged to maintain appropriate credit and money growth.

The bank said it would deploy a variety of tools to tweak monetary policy; open market operations would be aimed at maintaining appropriate levels of liquidity and money market rates. “In the period ahead, the PBOC will unswervingly implement the appropriately loose monetary policy while fine-tuning policy with market-oriented tools in line with economic and price changes at home and abroad,” the report said.

A rapid pick-up recently in medium- and long-term loans, at the expense of short-term bill discounting, would help to sustain growth in the world’s third-largest economy, the PBOC said.

“In the next stage, we need to keep policy continuity and stability, strengthen guidance to financial firms, and properly handle the relationship between supporting economic development and reducing financial risks,” the PBOC said.

Turning to the global economic outlook, the PBOC said the broad trend of stabilisation had been basically confirmed, but the road to recovery would be long and winding.

Some countries had already begun to study strategies for reversing expansive policies adopted to tackle the crisis, including quantitative monetary easing, the PBOC noted.

“It is necessary to make a correct judgment about both the timing and the strength of an exit. If policies are exited too quickly, it would place a lot of pressure on recovery. If the exit is too slow, it could lead to a new round of asset price bubbles and vicious inflation,” the central bank said.

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