China PBoC to ´actively promote´ yuan exchange rate reform -
Thursday, February 24, 2005 12:17:01 PM
forexstreet.com
BEIJING (AFX) - China's central bank, the People's Bank of China, said it will "actively promote" reform of the exchange rate regime this year
In the outlook for this year in its annual report on the financial system it also said that the reforms will be conducted in a stable manner
"The central bank will actively and in a stable manner promote the reform of the exchange rate system while maintaining a steady yuan around a balanced and rational level," it said in the report. The central bank said it will promote the full convertibility of the yuan, though it gave no timetable. In the annual report, published on the PBoC's website, the central bank also said it would tighten controls on inflows of short-term capital
It said it would also study greater use of open market operations as well as bank reserve requirements to adjust the nation's money supply
The central bank is having more difficulty in controlling money supply because of huge current and capital account surpluses and mounting foreign capital inflows
The central bank said it will conduct a prudent monetary policy to support a stable economic development while at the same time preventing inflation and risks in the financial system
Last year economic growth reached 9.5 pct despite efforts to cool investment in some areas seen as overheating
Inflation as measured by the consumer price index reached a high of 5.3 pct in July and August but that was eventually brought down to 3.9 pct for the full year. In January of this year, the CPI was only 1.9 pct year on year, its lowest rise since October 2003
The central bank said the financial situation this year will be stable. It added that its money supply target of 15 pct and goal for the growth in new loans of 2.5 trln yuan are proper in the current situation
It said this will help to create a good monetary environment for stable but relatively rapid economic growth
The PBoC also said that it will speed up reforms of additional state banks. It has already permitted two big state banks - the Bank of China and the China Construction Bank -- to move ahead with reforms that call for a stock offer and listing
The central bank called on those two banks to improve their corporate governance. Several domestic banks, including the Bank of China, have had fresh difficulties with lax internal controls - long a problem area for the banking sector. The PBoC said it will guide financial institutions to provide short-term credit to meet demand for working capital from solid companies while it strictly controls medium and long-term lending
The central bank said it will also put the property market under close scrutiny as real estate prices continue to rise
It said it will further study moves to a more market-oriented interest rate system. It gave no details but it already has relaxed its controls on lending rates
Macro-economic control is at a crucial stage, the central bank said, adding that the task of promoting economic development, deepening banking reform and maintaining financing stability is still arduous
Pressure from a possible rebound in fixed asset investment still exists. There are too many new construction projects under way around the country and many sectors are showing fresh signs of overheating
Inflationary pressure is not likely to ease significantly as utility prices will put upward pressure on consumer prices, the bank said |
