China’s central bank said reasonable volatility in money-market interest rates must be tolerated as it manages liquidity in the country’s financial system to rein in credit growth.
“When the valve of liquidity starts to tame and curb excessive credit expansion, money-market rates, or the cost of liquidity, will reflect that,” the People’s Bank of China said in its fourth-quarter monetary policy report released today.
China’s benchmark repurchase rate surged to a record in June after the central bank refrained from addressing a cash crunch in the interbank market as it cracked down on shadow finance.
The PBOC said today that while it will use tools including the reserve-requirement ratio and short-term lending facilities to ensure “appropriate liquidity,” it won’t bankroll a growth model that relies on investment and debt.
“The massive borrowing and construction led by local governments in recent years” increased risks in the Chinese economy, the central bank said in the report. Such a growth model can “easily lead to rising debt and may squeeze credit for other players, especially small businesses,” it said.
The central bank’s response to June’s cash crunch successfully tamed excessive expansion in money and credit to bring the growth rates for the year close to targets, according to the report.
M2, China’s broadest measure of money supply, rose 13.6 percent in December from a year earlier, slowing from a 15.8 percent pace in May. The government had set a target of 13 percent growth for 2013.
Add Liquidity
The seven-day repurchase rate, a gauge of interbank funding availability, jumped to 10.77 percent on June 20 before the central bank stepped in to add liquidity. The rate climbed again in late December to 8.84 percent as banks hoarded cash to meet year-end regulatory requirements.
The central bank’s control over monetary conditions “means market rates are more sensitive to changes in the economic situation and the demand and supply of money,” it said in today’s report. “So we must tolerate reasonable interest-rate volatility.”
In its 65-page report, the PBOC said there are still great uncertainties surrounding the U.S. Federal Reserve’s tapering of its quantitative easing policy.
“Cross-border capital flows, global foreign-exchange markets, asset prices and commodity prices must be watched,” it said.
The central bank also discussed the long-term effectiveness of Japan’s fiscal and monetary stimulus policies.
Economic Revival
The Bank of Japan last month stuck to its pledge to expand the monetary base by an annual 60 trillion yen ($588 billion) to 70 trillion yen to support Prime Minister Shinzo Abe’s campaign to stamp out deflation and drive a sustained economic revival.
Japan’s Upper House on Feb. 6 enacted a 5.47 trillion yen supplementary budget to help finance a stimulus package to cushion the economy from the impact of a sales-tax increase in April.
“If the negative impact of the sales tax on the Japanese economy is bigger than expected, the Bank of Japan may once again expand its monetary-policy easing,” the PBOC said.
bloomberg.com
“When the valve of liquidity starts to tame and curb excessive credit expansion, money-market rates, or the cost of liquidity, will reflect that,” the People’s Bank of China said in its fourth-quarter monetary policy report released today.
China’s benchmark repurchase rate surged to a record in June after the central bank refrained from addressing a cash crunch in the interbank market as it cracked down on shadow finance.
The PBOC said today that while it will use tools including the reserve-requirement ratio and short-term lending facilities to ensure “appropriate liquidity,” it won’t bankroll a growth model that relies on investment and debt.
“The massive borrowing and construction led by local governments in recent years” increased risks in the Chinese economy, the central bank said in the report. Such a growth model can “easily lead to rising debt and may squeeze credit for other players, especially small businesses,” it said.
The central bank’s response to June’s cash crunch successfully tamed excessive expansion in money and credit to bring the growth rates for the year close to targets, according to the report.
M2, China’s broadest measure of money supply, rose 13.6 percent in December from a year earlier, slowing from a 15.8 percent pace in May. The government had set a target of 13 percent growth for 2013.
Add Liquidity
The seven-day repurchase rate, a gauge of interbank funding availability, jumped to 10.77 percent on June 20 before the central bank stepped in to add liquidity. The rate climbed again in late December to 8.84 percent as banks hoarded cash to meet year-end regulatory requirements.
The central bank’s control over monetary conditions “means market rates are more sensitive to changes in the economic situation and the demand and supply of money,” it said in today’s report. “So we must tolerate reasonable interest-rate volatility.”
In its 65-page report, the PBOC said there are still great uncertainties surrounding the U.S. Federal Reserve’s tapering of its quantitative easing policy.
“Cross-border capital flows, global foreign-exchange markets, asset prices and commodity prices must be watched,” it said.
The central bank also discussed the long-term effectiveness of Japan’s fiscal and monetary stimulus policies.
Economic Revival
The Bank of Japan last month stuck to its pledge to expand the monetary base by an annual 60 trillion yen ($588 billion) to 70 trillion yen to support Prime Minister Shinzo Abe’s campaign to stamp out deflation and drive a sustained economic revival.
Japan’s Upper House on Feb. 6 enacted a 5.47 trillion yen supplementary budget to help finance a stimulus package to cushion the economy from the impact of a sales-tax increase in April.
“If the negative impact of the sales tax on the Japanese economy is bigger than expected, the Bank of Japan may once again expand its monetary-policy easing,” the PBOC said.
bloomberg.com
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