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Central Bankers Remain Prudent

The central People's Bank of China's (PBOC) monetary policy committee has opted to maintain a prudent monetary policy stance in the months ahead and keep interest rates stable.

The fourth quarterly meeting of the committee has also decided to steadily promote market-oriented interest rate reforms and improve the mechanism through which the renminbi's exchange rate is determined, the bank said in a statement issued Monday.

"The meeting included a deep analysis of international and domestic financial situations as well as changes in prices, and decided to... maintain the continuity and stability in macroeconomic policies..." the statement said.

The central bank has taken a slew of measures this year to contain rapid loan increases that many feared would lead to inflationary pressures and could derail China's fast-paced economic growth.

Besides increasingly strong open market operations aimed at soaking up excess liquidity, the central bank raised banks' required reserve ratio by 1 percentage point in September, which it said would freeze a total of 150 billion yuan (US$18 billion) in bank funds.

The efforts seem to have worked, with the growth of new renminbi loans registering the first downshift of the year in October.

M2, the broad measure of money supply, rose by 20.4 percent on a year-on-year basis to 21.64 trillion yuan (US$2.6 trillion) at the end of November, which was 0.6 percentage point from one month earlier.

"Overall, the trend of rapid credit growth has been brought under preliminary control, and financial performance has been stable," the PBOC statement said.

The committee also noted the need for a structural adjustment of lendings, vowing to limit loans flowing into industries where duplicate construction is a problem and pledging greater funding support to agriculture, small and medium-sized enterprises (SMEs) and other areas that produce relatively more jobs.

China's tough employment situation, reflected in the rising numbers of laid-off workers in State sectors and migrant workers, has been a major concern for policymakers.

In an effort to help alleviate a persistent funding shortage at SMEs, a major source for new jobs, the PBOC allowed commercial banks earlier this month to broaden the range of lending rates, hoping they would increase lending to SMEs when being able to adequately price in related lending risks.

(China Daily December 23, 2003)

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