2005 Second Quarter China Monetary Policy Implementation Report

Author: Monetary Policy Analysis Group of the People's Bank of China
Publisher:
Publish Date: 2005-09-01
Features: In the first half of 2005, the effectiveness of macroeconomic regulation became more evident, and the national economy maintained steady and relatively rapid growth. The momentum of excessively rapid investment growth continued to be restrained, while consumer demand grew rapidly. Various price indices stabilized and fell, and the income of urban and rural residents and fiscal revenue increased significantly. In the first half of 2005, the Gross Domestic Product (GDP) grew by 9.5%, and the Consumer Price Index (CPI) rose by 2.3% year-on-year. In line with the unified deployment of the Party Central Committee and the State Council to strengthen and improve macroeconomic regulation, the People's Bank of China continued to implement a prudent monetary policy in the first half of the year, primarily through market-based measures to enhance aggregate control and structural adjustment.
1. Flexibly conduct open market operations to regulate liquidity in the banking system.
2. Fully leverage the role of interest rates to reduce the excess reserve deposit rate of financial institutions at the People's Bank of China, appropriately adjust the upper limit of interest rates for small foreign currency deposits (USD and HKD) in domestic commercial banks, and revise and improve the rules for calculating and settling interest on RMB deposits and loans.
3. Adjust the policy for commercial banks' self-operated personal home loans.
4. Strengthen window guidance and credit policy guidance.
5. Steadily advance the reform of financial institutions and strive to maintain financial stability.
6. Continue to improve foreign exchange management.
7. Improve the formation mechanism of the RMB exchange rate. Starting from July 21, 2005, China began to implement a managed floating exchange rate system based on market supply and demand, with reference to a basket of currencies for regulation.
Overall, the economy in the second half of the year is expected to remain stable, and the fundamental basis for rapid development will not change. The inherent driving force for economic growth remains strong. However, some deep-seated contradictions and issues that currently constrain the sustained, rapid, coordinated, and healthy development of the economy have not been effectively resolved, and further observation and research are needed.
In the second half of 2005, the People's Bank of China will, in accordance with the unified deployment of the Party Central Committee and the State Council, continue to implement a prudent monetary policy, maintaining continuity and stability in aggregate terms, strengthening pre-adjustment and micro-adjustments, ensuring stable growth in monetary and credit, and emphasizing the market's inherent regulatory role to consolidate the achievements of macroeconomic regulation.
1. Comprehensively use various monetary policy tools to maintain reasonable growth in monetary and credit.
2. Continue to implement the policy of interest rate liberalization.
3. Adhere to "differential treatment, with retention and suppression," leveraging credit policy to guide structural adjustment.
4. Vigorously cultivate and develop financial markets.
5. Accelerate the reform of financial institutions.
6. Further improve the formation mechanism of the RMB exchange rate to promote balance in international payments and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.