PBOC pledges flexible action on market liquidity

Central bank also says it will reform interest rate system and improve pricing mechanism

PUBLISHED : Wednesday, 07 May, 2014, 1:08am
UPDATED : Wednesday, 07 May, 2014, 1:08am

The central bank yesterday pledged to use flexible tools to adjust liquidity and push forward interest rate liberalisation while warning of financial risks in property credit and local government debt.

"China's economy is likely to maintain a steady operation for some time in the future," the People's Bank of China said in its first-quarter monetary policy report published yesterday.

"However, there remain risks and uncertainties in the course of global economic recovery, while the intrinsic growth momentum of China's economy is yet to improve, overcapacity in some sectors remains serious, restrictions from resources and environment are getting more prominent, and potential risks merit high attention."

The PBOC said it aimed to ensure reasonable credit growth.

It would flexibly use tools such as open market operation and reserve requirement ratio, among others, to adjust market liquidity as needed, it said, repeating the wording in its fourth-quarter report.

The share of deposits that rural lenders are asked to park at the central bank was lowered recently although the impact on the overall economy was small.

The PBOC also said it would further reform the interest rate system and improve the market pricing mechanism. It did not offer a timetable for those steps.

It also vowed to increase the flexibility of the yuan exchange rate and steadily expand the channels for yuan funds to flow into and out of the mainland.

Credit policy would be used to support key areas, such as the rural sector, micro businesses, shantytown renovation, urban infrastructure and railways, while curbing lending to polluting industries and sectors plagued by overcapacity, it said.

Loans would be prioritised to aid building social housing and smaller homes as well as first-home purchases, while speculative investment would be "firmly curbed", the central bank said.

Although the property sector shows further signs of cooling, with home sales during the Labour Day holiday weekend in Beijing falling nearly 80 per cent from a year earlier, the central bank's wording on credit policy vis-à-vis the housing sector was little changed from the fourth quarter.

The PBOC said it would strengthen monitoring risks linked to local government financing platforms and credit default risks in the property industry.