China central bank to fine tune policy, keep yuan stable - Q4 monetary report

A Chinese national flag flies at the headquarters of the People's Bank of China, the country's central bank, in Beijing, China, January 19, 2016.REUTERS/KIM KYUNG-HOON

 Sat Feb 6, 2016

China will fine tune monetary policy and keep the yuan basically stable while guarding against systemic financial risks, the country's central bank said on Saturday in its fourth-quarter monetary policy report.

China will also maintain an appropriate level of liquidity and achieve reasonable growth of money and credit, the People's Bank of China (PBOC) said in the report.

The report comes after China reported economic growth of 6.9 percent for 2015, its weakest in 25 years, while depreciation pressure on the yuan adds to the case for the central bank to take more economic stimulus measures over the near-term.

In the report, the bank said it will "fine tune policy in a timely manner" and "flexibly use various policy tools ... to help maintain appropriate liquidity and reasonable growth in credit and social financing."

It also said it will seek to explore mechanisms to enhance management of interest rates, while increasing the flexibility in both directions of the yuan exchange rate.

It will improve the yuan regime and "let the market play a bigger role in setting the exchange rate, increasing two-way flexibility of the renminbi exchange rate, keeping the yuan basically stable at a reasonable and balanced level."

The PBOC said it will expand channels for yuan inflows and outflows and at the same time improve the prudential management of cross-border capital flows.

Liquidity often tightens ahead of China's Lunar New Year holidays, which begin on Monday. In the past month, the bank has repeatedly injected money into the banking system via short- and medium-term lending tools and increased the frequency of its open market operations.

The PBOC also said in the report that it will improve management of risks created by local government debt.

A slew of economic indicators has sent mixed signals to markets at the start of 2016 over the health of China's economy.

Activity in the services sector expanded at its fastest pace in six months in January, a private survey showed on Feb. 3, while manufacturing activity fell to the lowest since August 2012.

The central bank also said it aimed to "create a neutral and appropriate monetary and financial environment" for structural reform.

(Reporting by Matthew Miller, Kevin Yao and Xiaochong Zhang; Additional reporting by Beijing Monitoring; Editing by Christopher Cushing