Plenty room to ease curbs on lending, says bank chief
By Feng Jianmin |
March 13, 2012, Tuesday
|
Print Edition
Print Edition
China has plenty of room to ease curbs on lending when necessary and will continue to make monetary policies and the yuan more flexible, central bank officials said yesterday.
Zhou Xiaochuan, governor of the People's Bank of China, said that changes in the reserve requirement for commercial banks were not a direct signal of change in monetary policies. They were decided by the amount of market liquidity related to the capital flow of foreign currencies.
"There is a lot of room for reserve requirement cuts," Zhou told a press conference on the sidelines of the annual session of China's top legislature. "But we need to look at whether it's necessary, and look at market liquidity."
He said Europe is currently the single biggest source of uncertainty in international markets, and China will take both global and domestic factors into account when deciding timing for a change in reserve requirements or interest rates.
Zhou said the central bank introduced more flexible measures last year to ensure credit supply while keeping the tone of monetary policies prudent.
He pledged to proceed with reform of exchange rates and interest rates to enhance domestic consumption, to encourage imports, and to balance international capital flow into China.
China reported a trade deficit of US$31.5 billion last month, the first since February 2011 and the biggest in at least a decade. A trade deficit in the first two months of this year and its impact on the exchange rate of the yuan was "a good thing" for China, Zhou said. "The closer the yuan is to a balanced value, the bigger role the market will play in the yuan exchange rate. We will allow and encourage market forces to play a bigger role, and the central bank's participation and intervention in the market will decrease in an orderly manner," Zhou said.
Yi Gang, central bank vice governor and director of the State Administration of Foreign Exchange, also described the trade deficit in February as a "positive sign" for a more balanced international balance of payments.
Concerning the highly anticipated market-oriented reform of interest rates, central bank Vice Governor Hu Xiaolian said progress will be made by 2015, though certain conditions should be met.
"A fair competitive environment can be created only after financial institutions and companies are sufficiently regulated in their management and financial behaviors," she said.
An insurance mechanism to protect deposits from banks collapsing needs to be set up before interest rates can be decided by the market, Hu said.
The reform of interest rates is believed to be an essential measure to open up the financial system, but will hurt profitability of banks once implemented. There are growing complaints that Chinese banks are riding on their growing pricing power while the corporate sector is fighting for loans amid tighter liquidity.
Hu also said China had no plans to issue 500 yuan (US$79) or 1,000 yuan notes to prevent fueling inflationary expectations and risks of fake notes.
Zhou Xiaochuan, governor of the People's Bank of China, said that changes in the reserve requirement for commercial banks were not a direct signal of change in monetary policies. They were decided by the amount of market liquidity related to the capital flow of foreign currencies.
"There is a lot of room for reserve requirement cuts," Zhou told a press conference on the sidelines of the annual session of China's top legislature. "But we need to look at whether it's necessary, and look at market liquidity."
He said Europe is currently the single biggest source of uncertainty in international markets, and China will take both global and domestic factors into account when deciding timing for a change in reserve requirements or interest rates.
Zhou said the central bank introduced more flexible measures last year to ensure credit supply while keeping the tone of monetary policies prudent.
He pledged to proceed with reform of exchange rates and interest rates to enhance domestic consumption, to encourage imports, and to balance international capital flow into China.
China reported a trade deficit of US$31.5 billion last month, the first since February 2011 and the biggest in at least a decade. A trade deficit in the first two months of this year and its impact on the exchange rate of the yuan was "a good thing" for China, Zhou said. "The closer the yuan is to a balanced value, the bigger role the market will play in the yuan exchange rate. We will allow and encourage market forces to play a bigger role, and the central bank's participation and intervention in the market will decrease in an orderly manner," Zhou said.
Yi Gang, central bank vice governor and director of the State Administration of Foreign Exchange, also described the trade deficit in February as a "positive sign" for a more balanced international balance of payments.
Concerning the highly anticipated market-oriented reform of interest rates, central bank Vice Governor Hu Xiaolian said progress will be made by 2015, though certain conditions should be met.
"A fair competitive environment can be created only after financial institutions and companies are sufficiently regulated in their management and financial behaviors," she said.
An insurance mechanism to protect deposits from banks collapsing needs to be set up before interest rates can be decided by the market, Hu said.
The reform of interest rates is believed to be an essential measure to open up the financial system, but will hurt profitability of banks once implemented. There are growing complaints that Chinese banks are riding on their growing pricing power while the corporate sector is fighting for loans amid tighter liquidity.
Hu also said China had no plans to issue 500 yuan (US$79) or 1,000 yuan notes to prevent fueling inflationary expectations and risks of fake notes.
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