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PBC will stick with moderately tight approach: experts

PBC will stick with moderately tight approach: experts

China's monetary policy has been a little tighter in the first half of this year compared with 2016, and experts believe this will remain the case in the second half of the year.

The People's Bank of China (PBC), China's central bank, reaffirmed on July 4 what it stressed at the beginning of this year, saying that China should keep a "stable and neutral" monetary policy this year. 

This is slightly different from the tone set by the PBC in 2016, which was to execute a stable monetary policy and keep the liquidity level of the banking system at a sufficient level. 

Meanwhile, the government has also slightly lowered its M2 broad money supply growth target to 12 percent from last year's 13 percent. 

Liu Xuezhi, a senior analyst at Bank of Communications, told the Global Times on Monday that China's monetary policy has been tightened this year as a result of global financial factors, such as rate rises by the US Federal Reserve, and also domestic situations such as fluctuations in the stock markets and the soaring property market over the past year.

In addition, deleveraging policies have been required to tackle the rapid rise in enterprises' debts, an important task that was laid out in this year's government work report, Liu said.

The government's deleveraging efforts have taken place in several sectors. For example, tightening policies have swept across the real estate sector in major cities since September 2016 and they further intensified around the end of February.

Deleveraging efforts have also been seen in the financial sector. For example, the government has prohibited companies from using their own funds to invest in the wealth management products that they issue.

In line with the deleveraging and risk-control efforts, the PBC raised its interbank rates earlier this year. On February 3, the PBC raised the seven-day reverse repo rate, one of its key policy rates, by 10 basis points to 2.35 percent, the first such rise since 2013.  

Timely execution 

Amid the deleveraging efforts, there have been concerns about a strain on liquidity in the market in recent months. This has prompted the PBC to make large-scale capital injections into the market on several occasions this year to replenish liquidity.  

For example, on January 20, the PBC announced that it would provide liquidity support for several major commercial banks for 28 days.    

The PBC also announced around the end of May it would use its Medium-term Lending Facility in June, but later refrained from doing so when concerns about liquidity subsided.

"China's monetary adjustment has been flexible and timely," Liu Xuezhi said, noting that even if a lack of market liquidity becomes an issue, the central bank would roll out measures to deal with it.

Liu Dongliang, a senior analyst at China Merchants Bank, told the Global Times on Monday that the central bank has been alert to the liquidity issue.

"Overall, the central bank's regulation of market liquidity has shown itself to be effective," he said.

The Xinhua News Agency on Monday cited an employee at a city commercial bank who said that the bank faced liquidity pressure on several days this year, but while the capital was "insufficient in the morning, by the afternoon the situation had improved."

Tight but balanced supply 

Experts said that the current monetary policy trend will continue in the future, and will be kept at a relatively neutral level. 

Liu Dongliang said that in the short term, market liquidity will stay as it is - neither too tight nor too loose. He also said that liquidity shortages are not likely to occur in the long run.

The Xinhua report also cited sources as saying that in the second half the PBC will continue to keep currency supply at a "tight but balanced" level. 

Liu Xuezhi predicted that monetary policy will remain a little tightened if economic growth is good and strong, which means deleveraging and financial risk-prevention will still be carried out. 

But if growth weakens, the policy will be loosened, Liu noted.

Xie Jun & Zhang Hongpei

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