Mon, May 22, 2006 - Page 12 News List

Beijing to tighten lending, loosen constraints on yuan

POLICY PLANS China will strengthen bank lending measures, and wants to develop its forex market to allow increased flexibility for its currency

BLOOMBERG

China's central bank said it will control the pace of lending growth and increase flexibility in the yuan this year, the official China Securities Journal said in its weekend edition, citing the bank's annual report for last year.

The People's Bank of China will strengthen its so-called window guidance, or administrative orders directing lenders' operations, and other policies to prevent rapid bank lending increases that might fuel an investment rebound and lead to manufacturing overcapacity and an increase in bad loans, the Beijing-based newspaper said.

China also faces pressure on consumer prices, as utility and land price reform could lead to price hikes, and overcapacity in some industries can drag down prices, according to the central bank's annual report.

Consumer prices in China rose 1.2 percent last year from a year earlier after rising 0.8 percent in March, government data show.

China will further develop its foreign exchange market to increase the flexibility of its currency this year, the report said.

Last Monday, the yuan strengthened beyond 8 to the US dollar for the first time in more than 12 years after the country revalued its currency in July by 2.1 percent against the US dollar, dropping a decade-old peg and linking the yuan's value to a basket of currencies.

On April 27, the central bank raised its one-year lending rate by 0.27 percentage points to 5.85 percent, a move it said was aimed at curtailing lending to investment projects. China's money supply unexpectedly grew at a faster pace of 18.9 percent last month and yuan bank lending more than doubled, according to central bank data.

Separately, China is yet to prepare the ground for the introduction of more yuan derivatives such as options, the 21st Century Business Herald reported, citing Xu Jiandong, a deputy director in the balance of payments department at the State Administration of Foreign Exchange.

China needs to make its currency more flexible by widening its trading band and improve the interest pricing system to help boost trading of yuan forwards and swaps, the derivatives that are allowed, the newspaper cited another official at the regulator as saying.

The official, who wasn't named, also said China needs to increase the foreign-exchange quota for domestic and foreign banks, the newspaper reported.

China in August allowed banks to trade yuan forwards and swaps in a bid to provide domestic lenders and companies with more tools to hedge increased risks on the foreign exchange market. Fifty banks have so far been allowed to trade yuan forwards and seven are trading swaps, the newspaper cited Xu at the foreign exchange regulator as saying.

This story has been viewed 3086 times.

Comments will be moderated. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned.

TOP top