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UPDATED: November 16, 2010 NO. 46 NOVEMBER 18, 2010
Back to Normal
China's central bank looks to normalize its monetary policy and tighten control over liquidity
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DECISIONS, DECISIONS: A man shops at a supermarket in Hefei, Anhui Province. In October, China's CPI grew 4.4 percent year on year, mostly driven by rising food prices (GUO CHEN)

In this sense, the government must make moderate monetary adjustments to the market through flexible and timely monitoring, Wu said.

Time to draw back

While monetary policies are normalized, the stimulus package launched last year seems to be wrapping up.

Now, the fight against the financial crisis has entered its most crucial phase, and more stimulus efforts won't solve all the problems, said Hou. We must accelerate change in the economic development model and push forward reform and adjustment.

With different countries experiencing different economic situations, developed countries and emerging countries couldn't solve their problems by taking the same strong and large-scale stimulus policies as last year, said Hou.

Stimulus could help the economy avert a disastrous failure, but it will never lead to a new round of sustainable prosperity, said Hou.

Major Monetary Policy Changes (2006-10)

From January 2006 to June 2008, China's central bank increased interest rates eight times and raised the reserve requirement ratio 18 times.

- From September 2008 to December 2008, the central bank cut interest rates five times and decreased the reserve requirement ratio four times.

- The 4-trillion-yuan ($586-billion) stimulus package launched in 2009 injected an unprecedented amount of money into the economy. China's newly added yuan-denominated loans hit a record 9.59 trillion yuan ($1.4 trillion) in 2009.

- In 2010, the central bank increased the reserve requirement ratio for large financial institutions by 0.5 percentage points on January 18, February 25 and May 10, respectively, raised the ratio for all financial institutions by 0.5 percentage points on November 16.

On October 20, the central bank raised the benchmark interest rate by 0.25 percentage points, the first time in 33 months.

Newly added yuan-denominated loans totaled 6.89 trillion yuan ($1 trillion) in the first 10 months, accounting for 92 percent of the target of 7.5 trillion yuan ($1.1 trillion) for the year.

Money supply by the end of October 2010

Broad money (M2) totaled 69.98 trillion yuan ($10.45 trillion), up 19.3 percent year on year.

Narrow money (M1) totaled 25.33 trillion yuan ($3.78 trillion), up 22.1 percent year on year.

Cash in circulation (M0) totaled 4.16 trillion yuan ($621 billion), up 16.6 percent year on year.

Outstanding loans for all financial institutions totaled 49.74 trillion yuan ($7.42 trillion).

Outstanding deposits for all financial institutions totaled 71.84 trillion yuan ($10.72 trillion).

(Source: People's Bank of China)

 

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