China targets 16% money supply growth in 2006

Beijing, Jan 5 | Updated: Jan 6 2006, 05:30am hrs
Chinas central bank on Thursday set a slightly lower target for 2006 money supply growth than it expected for 2005, fine-tuning economic policy amid concerns that borrowing costs are too low.

The bank said it was targeting end-2006 money supply 16% higher than at the end of 2005. For last year, it most recently targeted 17% growth.

The countrys target for growth of narrower M1 money supply was 14 percent for the year while that of new yuan-denominated loans was set at 2.5 trillion yuan ($310 billion), it said in a statement on its Web site (www.pbc.gov.cn). The new targets, announced during an annual work meeting of central bank officials, were in line with government pledges to keep monetary policy stable in 2006. We will continue to implement a stable and healthy monetary policy, it said.

The central bank would use a combination of monetary policy tools to maintain reasonable growth of money supply and credit while steadily pushing forward market-based reforms of interest rates, it said. Short-term interest rates just 1.7% for 90-day central bank bills are very low for an economy growing faster than 9% annually, especially with some industries regarded as overheating, risking a bust. Most economists think interest rates should be higher, and the central bank has shown signs of raising them a little in the past few weeks.

The central bank said last month that M2 money supply, a measure of how much liquidity is available in the banking system, was on track to have grown 18 percent in 2005. It has said that that new yuan loans were likely to have hit 2.4 trillion yuan in 2005. Chinas target for new yuan loans in 2005 was also 2.5 trillion yuan. The central bank last raised its target for full-2005 M2 growth to 17% from 15%.

Money supply figures for end-December are expected to be published next week. The central bank pledged to keep the yuan basically stable at a reasonable and balanced level, repeating a long-standing policy.

Reuters