The People's Bank of China (PBC) disclosed the
macro-control goals for its monetary policy in 2006 at its annual
working conference held Thursday in Nanchang, capital of Jiangxi
Province.
The year-on-year growth of Broad Money Supply M2 (cash in
circulation and all deposits) in 2006 will be 16 percent, the
growth for Narrow Money Supply M1 (cash in circulation and demand
deposits) will be 14 percent and the increase of RMB loans will be
2,500 billion yuan (US$308.6 billion), said the central bank.
The goals show the prudence of China's monetary policy in 2006,
said Peng Xingyun, a financial expert at the Chinese Academy of
Social Sciences.
The PBC aims to maintain stable growth of the macro-economy
through its monetary measures, Peng said.
According to the conference, to realize the goals for the
monetary policy in 2006, the central bank will enhance monitoring
of economic and financial operations and increase the effectiveness
of the monetary policy.
The PBC will maintain a reasonable growth of loans by using a
variety of monetary policy tools and advance the market-oriented
interest rate forming mechanism, said the conference.
According to Peng, to guard against a possible deflation, the
central bank set a higher growth goal of M1 in 2006 than the real
growth rate last year.
M1 is a major settlement tool for commodities, services and
financial deals between enterprises and?thus its growth
directly reflects the activity of the economy, he said.
As the first 11 months of 2005 saw only a growth of 12.7 percent
of M1,?he said that there existed deflationary factors and it
is necessary for the central bank to set a higher growth rate of M1
this year.
According to the goals set for the monetary policy in 2005, the
growth of M1 and M2 were both 15 percent and the increase of RMB
loans was 2,500 billion yuan.
However, the real annual growth of M2 is expected to reach 17
percent in 2005, while that of M1 will be a little lower than the
goal and the increase of RMB loans would be less than 2,500 billion
yuan.
As the major financing sources for the Chinese economy are
banks, bank loans are an important index in examining the growth of
the economy, Peng said.
According to him, although the increase goal of RMB loans
set?in 2006?is equal to that in 2005, the real growth
will be lower as a result of a bigger base last year.
It shows that the central bank is not going to ease credit lest
the economy get overheating, he said.
The conference also sets tasks for work of the central bank in
2006: maintaining the continuity and stability of the prudent
monetary policy, advancing financial reform steadily, accelerating
reforms of introducing the stockholding system to state-owned
commercial banks, developing the financial market, safeguarding the
stability of the financial system, improving management of foreign
exchange and enhancing financial services.
As for the exchange rate reform in 2006, the central bank said
China will continue to improve the managed, floating exchange rate
regime as it is needed for the economic and financial development
and stability of the country.
Peng said that it is irreversible for the exchange rate regime
to become market-oriented and more progress is expected this
year.
But as pressures on revaluation of RMB is still high,?he
said that the central bank should find some more effective way to
intervene in the foreign exchange market to prevent large
fluctuations of the currency.
At its working conference on foreign exchange management held
yesterday in Nanchang, the State Administration of Foreign Exchange
pledged to take further steps this year to promote the development
of the foreign exchange market, the basis for achieving the state's
goal of building a market-driven exchange rate system.
?
In 2006, the administration will also improve the
management of foreign exchange in current accounts, facilitate
trade and investment, expand channels for capital to flow in and
out and advance capital account convertibility step by step.
It will?make more efforts to standardize
capital inflows to safeguard economic and financial security of the
country, improve the management of foreign exchange reserves,
enhance its supervision of foreign exchange fund inflows and
outflows and crack down on illegal foreign exchange deals.
?
(Xinhua News Agency January 6, 2006)