China Central Bank to Maintain ‘Prudent’ Monetary Policy

China’s Central Bank Will Maintain ‘Prudent’ Monetary Policy
The Chinese flag flies outside the People's Bank of China in Beijing, China. Photographer: Nelson Ching/Bloomberg

China’s central bank said it will keep pursuing a “prudent” monetary policy and the nation’s economy will maintain stable growth even amid the risk the global recovery will falter.

China will conduct policy fine-tuning at an appropriate time and consumer inflation may rebound after August, the People’s Bank of China said in a quarterly monetary-policy report on its website yesterday. The yuan exchange rate will be kept “basically stable,” the Beijing-based central bank said.

Chinese authorities are concerned that fallout from Europe’s debt crisis will further hurt growth in the world’s second-largest economy that has decelerated for six quarters. Separately yesterday, the securities regulator said the nation will lower transaction fees on yuan-denominated stocks after the benchmark index fell this week to a three-year low.

“At present, the primary risk for the global economy is still the European debt crisis,” the central bank said. The possibility of Europe “triggering a double dip in the global economy can’t be ruled out.”

The report reiterates government statements that China is focused on stemming the slowdown without preparing a stimulus comparable to the one announced in late 2008. Surveys of purchasing managers due today will show whether an expansion in services industries picked up or decelerated in July.

Growth Forecast

Goldman Sachs Group Inc. yesterday lowered its forecast for China’s expansion this year to 7.9 percent from 8.1 percent and for 2013 to 8.5 percent from 8.7 percent. “We expect growth to accelerate in the rest of the year and 2013 as supportive policies are gradually rolled out and implemented,” economists including Hong Kong-based Cui Li said in a research report.

Japan’s Komatsu Ltd., the world’s second-biggest maker of construction equipment, this week warned of slower Chinese demand. The company estimated industrywide sales in China may fall as much as 30 percent this year after earlier estimating growth of as much as 5 percent.

Central bank data yesterday indicated borrowing costs have declined, with June’s weighted average loan interest rate at 7.06 percent compared with 7.61 percent in March. The proportion of loans made above benchmark rates declined to 67 percent in June, versus 70 percent in March, the report showed. The PBOC cut interest rates in June and July, the first reductions since 2008, and allowed banks to offer bigger discounts below benchmark lending rates.

Capital Flows

The central bank said it will boost monitoring of local-government loans. Capital flows will be “basically balanced” in the second half and the size of any net capital inflows or outflows will be small, the PBOC said.

Authorities reiterated they will increase the two-way flexibility of the exchange rate and reduce the frequency of intervention in currency markets. Gains in the yuan have halted this year amid a slowdown in exports and economic growth. The PBOC in April widened the yuan’s daily trading band for the first time since 2007.

China’s securities regulator said the nation will lower transaction fees charged on yuan-denominated stocks traded in Shanghai and Shenzhen as officials seek to bolster investor sentiment amid slumping share prices. The benchmark Shanghai Composite Index has fallen 21 percent in the past year and earlier this week touched a three-year low.

Trading Fees

China will reduce A-share trading fees starting Sept. 1, following reductions earlier this year, the China Securities Regulatory Commission said in a statement on its website. Trading charges will be cut for futures exchanges in Shanghai, Zhengzhou and Dalian, according to the statement. The China Financial Futures Exchange will trim transaction fees.

A research group affiliated with China’s cabinet said the government should “appropriately” relax its lending quota and loan-to-deposit ratio for banks, as well as cut lenders’ reserve-requirement ratio at a proper time, according to the Shanghai Securities News.

China’s economy may grow a little faster in the third quarter and fourth quarter than in the second period, with full-year expansion probably at 8 percent or a little higher, the State Council’s Development Research Center said in a report published in the Shanghai Securities News yesterday.

— With assistance by Xin Zhou

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