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December 26, 2016

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Home » Business » Finance

‘Money gates’ fight asset bubble

Source: Agencies | December 26, 2016, Monday | Print Edition

CHINA needs to keep financial market liquidity stable and regulate its “money gates” to prevent asset bubbles, but it also needs to ensure a lack of liquidity doesn’t cause financial stress, according to a commentary in a newspaper owned by the People’s Bank of China.

Policymakers face a dilemma as they need to tighten credit to contain debt and speculative investment without triggering a wave of defaults that could destabilize the financial system.

The country’s leaders have called for a “prudent and neutral” monetary policy in 2017 and for prevention of financial risk, while keeping the economy on a path of stable and healthy growth, according to statements following a key economic meeting this month.

Monetary policy must support economic growth and ensure liquidity in the interbank market, but also needs to target price stability and pay attention to asset bubbles, Financial News said in the commentary on Saturday. Policies should also be more targeted, it said.

“Maintain macroeconomic stabilization policies, strengthen fine-tuning (of policies), but do not implement big stimulus,” the commentary said, but “explore more targeted ways to solve structural problems.”

The central bank has not cut interest rates in 14 months and as the economy has proved relatively resilient, it has been guiding money market rates steadily higher to root out speculators.

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