Central bank maintains relaxed monetary policy

China's central bank said yesterday it will maintain a relaxed monetary policy to ensure sufficient liquidity to support economic growth, easing concerns it will tighten credit following strong money-supply growth last month.

The People's Bank of China yesterday said measures taken to boost economic growth had shown early good signs and a 'moderately loosened' monetary policy and keeping ample liquidity in the banking system would continue to be implemented.

The comment was greeted with caution by analysts and economists who said last month's growth in credit was encouraging rather than alarming as it was driven by the government's stimulus package. The figures could also have been exaggerated by interest rate arbitrage activities by lenders, they said.

However, some observers warned that banks that did not exercise care with their credit controls could face rising bad loans.

Adding fuel to those concerns was the fact that after the latest jump, new loans made in the first quarter amounted to 4.58 trillion yuan (HK$5.19 trillion), close to the government's target of 5 trillion yuan for the whole year.

In a statement, the PBOC said it would continue to 'implement the macroeconomic controls set by the central party committee and the State Council, implement a moderately loosened monetary policy [and] maintain continuity and stability of monetary policy'.