China’s central bank pledged on Sunday to use a mix of policy tools to adjust banking liquidity to ensure steady credit growth, in an apparent bid to soothe market concerns about tighter monetary conditions.
The central bank will “use a mix of price and quantitative policy tools to adjust liquidity in the banking system and guide steady and appropriate growth in money, credit and social financing”, it said in a statement on its website.
The central bank allowed short-term interbank borrowing costs to spike to close to 30 per cent on June 20, a blunt warning to overstretched lenders that they must bring risky lending under control.
The cash crunch – caused by factors including fast credit growth, the regulatory deposit reserve requirement and a crackdown on hot money inflows – is abating after the central bank signalled its readiness to soothe market volatility.
The People’s Bank of China, while affirming its prudent monetary policy, also said a temporary jump in short-term interest rates would not hurt the real economy.
“Overall, liquidity in the banking system remains ample,” it said. “The slower M2 growth in June was in line with the expected outcome of macro-economic adjustments and prudent monetary policy and was closer to the full-year target of 13 per cent.”