China’s central bank signaled a “gradual” exit from monetary stimulus as the recovery in the world’s third-largest economy gains momentum.
The People’s Bank of China will “gradually guide monetary conditions back to normal levels from the counter-crisis mode,” it said in a quarterly monetary policy report on its Web site. The previous report didn’t refer to ending an emergency stance.
January economic data released today showed lending surged and property prices climbed by the most in 21 months while inflation moderated. The central bank warned that risks include an unwinding of stimulus policies in major developed economies that may trigger a reversal of inflows of capital.
“There’s no call for more extreme action” in withdrawing stimulus in China, said Mark Williams, an economist with Capital Economics Ltd. in London. “Today’s inflation data has assuaged some fears over overheating.”
Policy makers will consider “the need for economic growth, changes in inflation, and domestic and global liquidity,” when restoring monetary conditions to normal, the report said.
The central bank repeated a call for global coordination of stimulus exits.
“Before major developed economies fully exit their abnormal policies, global liquidity may remain ample and keep pushing up asset prices,” the report said. “But once major developed economies start to exit, global capital flows may reverse and global asset prices, especially asset prices in emerging markets, may see volatilities.”
Faster Growth
China’s gross domestic product expanded 10.7 percent last quarter from a year earlier, the fastest pace since 2007, and the government has said that managing inflation expectations is one of its key goals for 2010.
The central bank reiterated that it will guide “reasonable” credit growth in 2010 and said it will “allow interest rates to play a role in adjustments,” without elaborating. It said it will use multiple monetary-policy tools after raising banks’ reserve requirements last month and guiding bill yields higher at auctions.
The report reiterated a moderately loose monetary policy and that the central bank will keep the yuan “basically stable.”
The People’s Bank of China said that it expects M2 money supply to expand 17 percent this year, a target that it missed by more than 10 percentage points in 2009. M2 rose 26 percent in January from a year earlier, today’s data showed.
While seeing “more positive” factors for the Chinese economy in 2010, the central bank warned that challenges include “unbalanced” growth in domestic demand, instability in prices, and intensifying trade frictions.
Lending Boom
China’s lending surged to 1.39 trillion yuan ($203 billion) in January and property prices climbed as banks extended more credit in anticipation the government will tighten monetary policy.
Lending was more than in the previous three months combined, data on the central bank’s Web site showed today. Property prices in 70 cities rose 9.5 percent from a year earlier, the National Development and Reform Commission said separately.
Last month’s economic data were distorted by a Lunar New Year holiday that fell in January in 2009 and February this year.
China’s 9.35 trillion yuan of loans in the past 12 months has added to the risk that the economy may overheat as it rebounds from the financial crisis.
Most of last year’s lending was in the first half. The central bank said today that its efforts to control loan growth in the second half paid off by helping to reduce “possible risks that may undermine long-term economic stability.”
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