Central bank reiterates credit policy stance

By Si Tingting (China Daily)
Updated: 2009-08-06 10:17

The central bank has reiterated its commitment to stick to the "moderately loose" monetary policy that, according to it, has helped spur economic growth and revive the stock and property markets.

"In the period ahead, the People's Bank of China (PBOC) will unswervingly implement the appropriately loose monetary policy while fine-tuning policy with market-oriented tools in line with economic changes at home and abroad," the bank said Wednesday in its quarterly monetary policy report.

While the US and Western economies have faced a credit crunch, there is a credit feeding frenzy in China. During the first half of this year, banks have lent nearly 7.4 trillion yuan - far exceeding the country's initial full-year target of disbursing 5 trillion yuan in loans.

The record lending spree - equal to one-quarter of the nation's total economic output in 2008 - could escalate bad debt problems and create inflationary pressure, analysts said.

"Although the PBOC's statement is in line with government's tone of sticking to the moderately loose monetary policy, it has already initiated some micro-tightening measures like open market operations and the banking regulator's call for stricter credit management," Liu Yuhui, director of the Center for Chinese Economic Evaluation at the Chinese Academy of Social Sciences, told China Daily.

In a notice issued in June, China's top banking regulator asked the lenders not to resort to excessive lending to meet targets, but rather focus on strengthening credit management.

In the same PBOC report, it also said positive economic signs were multiplying, but private investment remained weak, income expectations were subdued and it was hard to be optimistic about exports.

Jerry Lou, Hong Kong-based China strategist of Morgan Stanley, feels that the government may not go in for a tight monetary policy - despite a series of micro-tightening efforts - before the second half of 2010. "We assume there would be two rate increases in the second half of 2010," he said.

The State Council is sticking to the line that the foundation of the economic recovery is still fragile. This means decision makers are unlikely to go in for any changes immediately, said a report from Standard Chartered Bank.

"As the recovery becomes more solid in the third quarter, we expect an orderly winding down of stimulus policies beginning in the fourth quarter or early next year. The key move will be the first hike in the reserve requirement," the report said.