China central bank vows to ensure steady credit growth

BEIJING (Reuters) - China's central bank on Thursday pledged to guarantee steady expansion in money supply and credit to cushion the world's second-largest economy against stiff global headwinds.

Chinese top leaders on Tuesday pledged to step up policy fine-tuning in the second half of 2012 to bolster an economy that saw its slowest pace of growth in more than three years in the second quarter.

"China will use multiple monetary policy tools to guide stable and appropriate growth in credit and money supply and maintain the reasonable scale of social financing aggregate," the People's Bank of China said in its second-quarter monetary policy implementation report.

"China will make monetary policy more forward-looking, targeted and flexible while continuing to preemptively adjust and fine-tune policy when appropriate," it said in the report published on the bank's website, www.pob.gov.cn.

The central bank pledged to use multiple monetary policy tools, including banks' reserve requirement ratio (RRR) and open market operations, to manage liquidity.

Still, it cautioned that loosening policy too quickly could stoke inflation, which cooled to a 29-month low of 2.2 percent in June.

"The impact of China's expansionary policy may wane in stimulating growth, while the impact on inflation will rise," it said. Consumer inflation may rebound after August, the bank said.

Bank lending is a centerpiece of the central bank's policy setting as it ratchets up efforts to support economic growth that hit a three-year low of 7.6 percent in the second quarter.

The central bank has cut interest rates twice since June and cut RRR three times since late 2011. Further policy easing is widely anticipated.

China will forge ahead with market-based interest rate reforms and increase the flexibility of the yuan, the bank said.

"The central bank will reduce the frequency of currency market interventions to increase yuan flexibility," it said.

As the U.S. economy lacks a foundation for solid recovery, Europe's festering debt crisis could pull the world economy into a second recession if the bloc should fail to bolster market confidence timely, the central bank warned.

China is at risk of a rebound in inflation and monetary policy should focus on managing financial system liquidity as the best way to underpin slowing growth, the Financial News operated by the PBOC said earlier on Thursday.

The paper said China should keep curbs in place designed to kill off speculative pressure in the real estate market that saw home prices double in key cities between 2009 and 2011, pushing them beyond the reach of many middle class Chinese citizens.

(Reporting by Kevin Yao and Langi Chiang and Xiaoyi Shao; Editing by Mark Bendeich and Sanjeev Miglani)

Source: http://news.yahoo.com/china-central-bank-vows-ensure-steady-credit-growth-110212447--business.html

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