China will continue applying consistent and moderate tightening monetary policies in the remaining months of this year, according to the second quarter conference by the monetary policy committee of the central bank.

 

In the second half, the People's Bank of China (PBC) will focus on adjustments over its foreign currency policies and management of liquidity in the banking system. It will adopt multiple monetary instruments to keep prices at appropriate levels. The central bank will also target balanced growth in credit and debt, said the conference.

 

According to a report released by PBC recently, China's trade surplus has increased the country's foreign exchange reserves and resulted in an affluence of capital and excessive liquidity since last year.

 

This year, the central bank has raised interest rates twice and required bank reserve ratio five times. However, analysts expect further interest rate and reserve ratio hikes in the coming months.

 

Last week, the Ministry of Finance was authorized to issue 1.55 trillion yuan special treasury bonds for exchange of US$200 billion forex reserves from the central bank. The bonds, which will be issued by PBC to institutional investors including banks, insurers and the social security fund, will help rein in excessive capital floating in the market to alleviate the pressure from the liquidity problem, said Minister of Finance Jin Renqing earlier.

 

The conference stressed that it will improve the managed floating rate system in its foreign exchange policy. It aims to promote demand-and-supply-oriented market mechanism in the exchange rate formation system, and maintain a reasonable, stable and balanced yuan exchange rate.

 

(China Daily July 4, 2007)