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Central bank to keep interest rates stable
( 2003-09-18 07:13) (China Daily)

China's central bank Wednesday expressed pronounced worries about the rapid growth in the nation's money supply, but insisted it would keep interest rates on deposits and loans  "basically stable."

It also said it will keep the exchange rate of the yuan generally unchanged but will improve the exchange rate determining mechanism.

The third-quarter meeting of the People's Bank of China's Monetary Policy Committee concluded that  "although the new phenomena in the economy now are still up to further observation, credit growth is obviously on the fast side'' the bank said in a press release.

Chinese financial institutions carved out 2.1 trillion yuan (US$253 billion) in renminbi loans in the first eight months of the year, far outstripping the total lendings of 1.84 trillion yuan (US$221 billion) for all of last year.

Driven by the rapid loan rises, M2, the broad measure for money supply that covers cash in circulation and all deposits, soared by 21.6 per cent on a year-on-year basis to 21.06 trillion yuan (US$2.5 trillion) at the end of August, the fastest pace since May, 1997.

The money supply growth has been hovering at levels a few percentage points above the 17 per cent target this year, leading to inflationary fears within the central bank.

The rapid money supply growth, coupled with fast fixed asset investments which the National Bureau of Statistics said yesterday soared by 30.7 per cent on a year-on-year basis to 361.1 billion yuan (US$43.5 billion) in August, also fuelled worries about overheating in the economy.

The bank announced last month it would raise required reserves at commercial banks to 7 per cent of their total deposits, from 6 per cent currently.

The move, which takes effect at the end of next month, is widely estimated to be able to freeze some 600 billion yuan (US$72 billion) in money supply, but there still has been speculation over the past weeks that the central bank may opt for a hike on deposit and lending rates to keep inflation at bay.

The bank said yesterday that: "According to the economic situations both at home and abroad, we should continue to keep the interest rate on deposits and loans basically stable.''

The central bank also urged commercial banks to watch for further risks in their loans and optimize their lending structures.

 
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