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PBOC Shows Signs of Tightening Monetary Policy
According to Galaxy Securities' Co. chief economist, Zuo Xiaolei, China's central bank may tighten monetary policy this year after previously saying it would "fine-tune" it. Xiaolei says that the People's Bank of China has excessively loose monetary policy in the first two quarter of the year but that the last two quarters needed to be changed to "appropriately loose monetary policy". The People's Bank of China also said in a quarterly report that it will maintain a "moderately loose" monetary policy and guide "appropriate" loan growth. According to Xiaolei, the adjustment will avoid big ups and downs in China's economy and ensure growth. The central bank is selling more bonds to decrease the supply of yuan in the public's hands, in attempt to avoid inflation.
China's central bank may tighten monetary policy this year after saying yesterday that it would use "dynamic fine-tuning," Galaxy Securities Co. chief economist Zuo Xiaolei said. "In the first half, we had excessively loose monetary policy and now, in the second half, we're moving into appropriately loose monetary policy," Zuo said today by phone from Beijing. The Shanghai Composite Index fell for a second day, trimming this year's gain to 84 percent, on concern that the government will rein in lending to prevent bubbles in stocks and property. The Peoples Bank of China also said in a quarterly report that it will maintain a "moderately loose" monetary policy and guide "appropriate" loan growth. "The central bank is doing the right thing," Zuo said, without specifying how it may tighten policy. "China needs stable economic growth. China doesn't need big ups and downs." The stock index slid 2.4 percent as of the break in trading at 11:30 a.m. local time. The central bank has kept interest rates and reserve requirements for banks unchanged this year after cutting them in the final four months of last year to counter the effects of the global credit crisis. It's selling more bills to mop up cash. The reserve ratio is 15.5 percent for big banks and 13.5 percent for small lenders. The key one-year lending rate is 5.31 percent. "Spooking Investors' The reference to fine-tuning policy "is spooking investors who are worried that the central bank will follow up with tightening measures, such as hiking the reserve ratio," said Wang Zheng, a fund manager at Jingxi Investment Management Co. in Shanghai. The central bank will "use market oriented methods to carry out dynamic fine-tuning taking into consideration domestic and international economic conditions and price changes," it said in yesterday's report. Chinese banks made a record 7.37 trillion yuan ($1 trillion) of new loans in the first half as the government sought to revive economic growth that slowed to the weakest pace in almost a decade. M2, the broadest measure of money supply, rose a record 28.5 percent in June from a year earlier.read source article