2006 Third Quarter China Monetary Policy Implementation Report

Author: Monetary Policy Analysis Team of the People's Bank of China
Publisher:
Publish Date: 2006-12-01
Features: In the third quarter of 2006, China's national economy grew steadily and rapidly, with overall positive economic performance. Consumption grew steadily and rapidly, investment growth slowed at a high level, foreign trade developed rapidly, and residents' income, corporate profits, and government revenue all increased significantly, with stable market prices. In the first three quarters, the Gross Domestic Product (GDP) grew by 10.7%, and the Consumer Price Index (CPI) rose by 1.3% year-on-year. In accordance with the unified deployment of the Party Central Committee and the State Council to strengthen and improve macroeconomic regulation and control, the People's Bank of China continued to implement a sound monetary policy, strengthening liquidity management in the banking system and coordination of domestic and foreign currency policies. It comprehensively used various monetary policy tools to optimize credit structure and rationally control the total volume of monetary and credit.
1. Flexibly conducted open market operations, controlling the issuance of central bank bills in terms of intensity and rhythm, regulating excess liquidity in the banking system, and reasonably arranging the combination of operational tools.
2. Leveraged the role of interest rates to raise the benchmark interest rates for RMB deposits and loans of financial institutions.
3. Raised the reserve requirement ratio for financial institutions, enhancing the proactive and effective capacity of the central bank to absorb excess liquidity.
4. Further strengthened "window guidance" and credit policy guidance, guiding financial institutions to conscientiously implement the state's macroeconomic control requirements, rationally control loan growth, and strengthen loan structure adjustment.
5. Steadily advanced the reform of financial enterprises.
6. Continued to introduce a series of supporting measures for the reform of the RMB exchange rate formation mechanism, raising the reserve requirement ratio for foreign currency deposits of domestic financial institutions, and further improving the managed floating exchange rate system.
7. Strengthened and improved foreign exchange management, broadened channels for foreign financial investment, strengthened supervision over cross-border capital inflows, and promoted basic balance in international payments.
In the third quarter of 2006, the growth trend of money supply slowed down, and the growth rate of loans declined slightly, with overall stable financial operations. By the end of September, the broad money supply (M2) stood at 33.2 trillion yuan, up 16.8% year-on-year; the base money supply stood at 6.6 trillion yuan, up 8.9% year-on-year; and the RMB loan balance stood at 22.1 trillion yuan, up 15.2% year-on-year. The interest rates in the money market tended to stabilize. By the end of September, foreign exchange reserves stood at 987.9 billion U.S. dollars, an increase of 169 billion U.S. dollars from the previous year-end, and the central parity rate of the RMB to U.S. dollar exchange rate was 7.9087 yuan per U.S. dollar.
It is preliminarily estimated that China's national economy will continue to maintain a good development momentum in the fourth quarter of 2006, but it is necessary to further consolidate the foundation for the slowdown in fixed-asset investment and monetary and credit growth, and pay attention to addressing issues such as the intensification of the imbalance in international payments, severe challenges in energy conservation, emission reduction, and pollution control. The People's Bank of China will, in line with the spirit of the 6th Plenary Session of the 16th Central Committee of the Communist Party of China, conscientiously implement the Party State Council's decisions and arrangements for economic work, execute a sound monetary policy, coordinate the use of various monetary policy tools, strengthen liquidity management, and rationally control the growth of monetary and credit. At the same time, it will adopt comprehensive medium- and long-term measures to accelerate economic structural adjustment, implement policies to expand domestic demand, and promote the basic balance of international payments.