CPI Consumer Price Index News
- Nation to focus on curbing liquidity
Date: 23-Jan-2007 Sources: (Shenzhen Daily)
THE central bank will use a combination of monetary policy tools this year to soak up excess liquidity in the banking system as continued trade surpluses increase the nation's foreign exchange reserves.
M2, the broadest measure of money supply, which includes cash and all deposits, is likely to increase about 16 percent this year, compared with a 16.9 percent expansion in 2006, the central bank said on its Web site Sunday. The 2007 forecast is based on assumptions that economic growth will be 8 percent and the consumer price index won't increase more than 3 percent.
'China will maintain steady growth in lending, increase the flexibility of the yuan and let the market determine the exchange rate,'' the central bank said in the statement. 'The country pledges to maintain the steady advancement of its monetary policy, helping to keep economic growth stable.''
Record trade surpluses have pushed up China's foreign reserves to more than US$1 trillion, flooding the financial system with cash and complicating the central bank's efforts to prevent a rebound in loans and investment. The bank has raised interest rates twice and bank reserve requirements four times over the past nine months to try to cool the economy.
Excess reserves at China's financial institutions, extra cash in excess of required reserves, rose 2 percentage points in December to 4.78 percent, the central bank said Jan. 15.
'That means there is still much room to raise reserve requirements further,'' Wang Yuanhong, senior economist with the State Information Center, affiliated with the National Development and Research Center, said before the statement.
China's money supply grew in December at close to its slowest pace of 2006, with M2 rising 16.9 percent to 34.6 trillion yuan (US$4.4 trillion), after gaining 16.8 percent in November, the bank said Jan. 15. Outstanding yuan loans rose 15.1 percent in December from a year earlier to 22.5 trillion yuan, and new yuan lending climbed to 214.2 billion yuan from 193.5 billion yuan in November.
The central bank raised the reserve requirement by 0.5 percentage points in June, July and November after leaving it unchanged for more than two years. It estimates every increase of that size reduces the amount available for lending by 150 billion yuan.
The central bank reaffirmed its pledge to improve its foreign-exchange management, according to the statement.
The bank said that it will accelerate the development of the currency market and increase the introduction of foreign-exchange products.
The statement reiterated Premier Wen Jiabao's pledge Saturday to increase the number of shareholders in the State-owned Agricultural Bank of China.
The central bank said it will also encourage foreign enterprises to raise funds in the domestic capital market, and it pledged to curb the short-term debts of Chinese banks and companies.
Commercial banks will be encouraged to set up mutual fund units, the central bank said.
It will also accelerate the opening up of the gold market and increase the development of new products, the statement said.
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