MercoPress. South Atlantic News Agency

China confirms it will stick to moderately loose monetary policy

The world’s third largest economy has opted for an expansive approach, according to the latest report from the Peoples Bank of China

China’s central bank said on Thursday it will stick to a moderately loose monetary policy as economic growth becomes better balanced between consumption, investment and exports.

Money and loan growth was “reasonable” in the first six months and liquidity in the banking system “basically appropriate,” the central bank said in a statement after its second-quarter monetary policy meeting.

The central bank dropped a reference in the previous statement, in March, to the management of loan and credit growth being an “arduous task.” A reduced trade surplus this year and bank quotas limiting lending have helped officials to begin reining in liquidity, helping to contain inflation risks.

China’s growth in M2, the broadest measure of money supply, has cooled from a record 29.6 percent in November last year to 21 percent in May. Data for June may be released next week.

“China’s economy has maintained a positive upturn and growth in consumption, investment and exports has become more balanced” in the first half of the year, the People’s Bank of China said.

The bank said it will maintain policy continuity and flexibility and use multiple monetary policy tools to maintain “appropriate” growth in money and credit this year.

The central bank has sold bills to soak up liquidity and asked banks to set aside larger reserves three times this year. The government has also raised mortgage rates to crack down on property speculation, while keeping interest rates unchanged at crisis levels.

An explosion in credit helped to drive China’s economic rebound in 2009. The government has set a target of 7.5 trillion Yuan (1.1 trillion USD) in new loans this year, a 22% reduction, as part of trying to keep prices in check and limit the risk of banks piling up bad loans.

The central bank echoed Premier Wen Jiabao’s June 30 assessment that the world’s third-largest economy is heading in the “expected” direction set by macro-economic controls.

Still, the bank warned of “relatively big” uncertainties in the global economy and said China still faces an “arduous” task in balancing growth, the management of inflation expectations and economic restructuring.