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Why frequent actions taken in monetary policy? (2) |
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16:43, August 13, 2007 |
The growth rate in the fixed assets investment for the whole society in the first half year decreased by 3.9 percent over the same period of 2006 but compared with the first quarter of the year, it accekerated by 2.2 percent. Since the start of this year, the problem of excess fluidity has still been relatively eminent with a fairly fast rise in monetary credit. China's aggravated trade surplus grew 83.1 percent to 112.5 billion US dollars during the first six months, implying that the half-year GDP growth might exceed expectation and trigger strict macro-control.
Meanwhile, by the end of June, the M2 - a broad measure of money supply - grew 17.06 percent from a year ago, higher than the goal of 16 percent at the beginning of the year. Moreover, according to the central bank, China''s commercial banks lent up to 2.5 trillion yuan (329 billion dollars) in the first half of the year, approaching 80 percent of the total for last year.
The goal of China''s monetary policy is to stabilize the currency value and proceed to promote economic growth, whereas the stabilization of the currency value is composed of two aspects, namely, the commodity price and the exchange rate. So monetary policy has to be introduced definitely for curbing a possible all-round rise of commodity prices, to maintain the currency value and to stop economic growth from turning overheated after growing too fast.
To be specific, the interest rate hike is conducive to the control of inflation anticipation and the basic stability of commodity prices. Hence, interest policies should take into account not only of the current price situation but of the price trend or direction in the future. The interest rate raise indicates a kind of the government''s attitude, that is, not to take an indulgent approach. The Increase of interest raise rate will be favorable to the rational increase of both investment and credit. Furthermore, as interest means the price of capital, to increase interest rate for loans will help reduce the loan requirement and restrain the overgrowth of investment requirement, and also help control the overgrowth of loans and money supply.
Repeated calculations have affirmed that a half-a-percent rise in reserve requirement ratio for bank deposits will result in additional 170 billion yuan of frozen bank assets. Raising deposits requirement ratio will facilitate enhancing the fluidity management of the banking system and appropriately reduce the credit extension capacity of commercial banks.
PBOC discloses its financial policy inclination in the Monetary Policy Report of the Second Quarter of 2007 it has issued recently. It is learned that PBOC will go implementing a steady, pro-rigid monetary policy, with essential intensity of regulation and control. In line with requirements for macro-economic control, active, steady efforts will be made to innovate the hedging instruments and step up the management of fluidity control. Moreover, it is imperative to spur the interest rate market reform steadily and further improve the regulatory role of the price lever and continue to give scope to the positive role of the exchange rate in regulating the balance of international payment.
<i>By People's Daily Online</i>
[1] [2]
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