China's 2011 money supply back to normal level

BEIJING - China will bring its overall money supply to a normal level with a range of policy tools next year as the government shifts monetary policy from "moderately loose" to "prudent", the central bank said Friday in a statement on its website, citing Deputy Governor Hu Xiaolian.

Hu, a deputy governor of the People's Bank of China (PBOC), said at a meeting with bankers that China needs a shift to a prudent monetary policy to rein in rising consumer prices and curb asset bubbles.

China is facing tremendous inflationary pressures, with the country' s consumer price index (CPI), a main gauge of inflation, accelerated to a 28-month high in November of 5.1 percent.

"The major task for next year's monetary policy will be normalizing money supplies," she said, noting that the growth in money supply, mostly measured by M2, or the broad money supply, should be slowed from the pace during the implementation of a moderately loose policy.

The Chinese government should maintain a "reasonable and moderate" credit growth next year that is in line with the country's goal in economic development and inflation control.

New yuan-denominated loans in China stood at 7.45 trillion yuan in the first 11 months of this year - just shy of the government's full-year target of 7.5-trillion-yuan.

Hu said with the global financial crisis having eased from its peak and China's stabilized economic momentum, the country is able to maintain a steady and relatively rapid economic growth with a prudent monetary policy.

Hu stressed that China is facing pressure due to ample liquidity from home and abroad, and for the next phase, the Chinese government will work on liquidity controls with a range of policy tools, including open market operations and adjustment in interest rates and reserve requirement ratios.

She highlighted the use of the differential reserve requirement ratio to supplement regular policy tools, which could guide banks to lend "reasonably, moderately and steadily" and boost risk controls in the financial system.

China increased interest rates by 0.25 percentage points in October and hiked the bank reserve requirement ratio six times this year to 18.5 percent and 19 percent for some large commercial banks in a move to curb lending amid accelerating inflation.