Tags: China | fine-tune | cash | squeeze

China May 'Fine-tune' Policy as Cash Squeeze Threatens Economy

Sunday, 23 Jun 2013 08:07 PM

China may adjust monetary policy as needed while seeking more efficient use of the nation’s financial resources as a cash squeeze in the banking system risks exacerbating an economic slowdown.

The People’s Bank of China said the nation should “appropriately fine-tune” its policies, according to a statement on its website Sunday that summarized the monetary policy committee’s second-quarter meeting in Beijing. It was the first time since September that the panel, led by Governor Zhou Xiaochuan, has used the “fine-tune” phrase, suggesting officials are more open to loosening policies.

The comments follow an easing of the cash crunch on June 21 after the seven-day repurchase rate, a gauge of interbank funding availability, rose to the highest since at least 2003. Slowing growth in the world’s second-largest economy, a crackdown on illegal capital inflows and efforts to rein in shadow banking have contributed to increased borrowing costs.

The PBOC, which didn’t elaborate on the fine-tuning or reference this month’s developments in its statement, reiterated that it will implement a “prudent” monetary policy, a label in place since 2010.

Risk is rising in China’s financial system as the shadow-banking sector expands and financial institutions make more highly leveraged investments to boost profit, the official Xinhua News Agency said in an analysis published yesterday.

Premier Li Keqiang signaled a determination to stamp out speculation funded by cheap money with a June 19 State Council statement saying banks must make better use of existing credit and step up efforts to contain financial risks.

Independent Decisions

The PBOC doesn’t have the political independence of counterparts such as the U.S. Federal Reserve, meaning senior officials above Zhou must approve major decisions.

China will strive to make its monetary policies more forward-looking, targeted and flexible, the central bank said Sunday. Policy makers are paying close attention to the latest developments in the global and domestic financial markets as well as changes in international capital flows, it said.

The nation’s economy is on a steady path and consumer prices are stable, it said. The central bank will use a combination of different monetary instruments as it seeks to guide steady and moderate growth in aggregate financing, it said.

China will keep pushing for reform of its yuan exchange- rate mechanism and interest-rate liberalization, the central bank said.

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