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China's central bank deputy governor Yi Gang said on Wednesday that the country's official M2 target is not low and that China will use monetary tools to soak up excess liquidity if yuan positions for purchasing foreign exchange surge.
M2 is a broad measure of money supply that covers all the deposits and cash in circulation.
Premier Wen Jiabao said on Tuesday that the government has set a growth target of 13 percent for M2, 0.8 percentage points lower than the level last year.
"The economic growth target is 7.5 percent, while inflation is expected to be contained at 3.5 percent. Combining these figures, there is still two percentage points left," Yi said.
He said the target has fully considered monetization and other factors, and is "appropriate".
Yi made the remarks while attending a group discussion of the Chinese People's Political Consultative Conference as a member.
He added the monetary stand is still prudent, and yuan positions for purchasing foreign exchanges — an indicator of capital inflows — are always volatile.
"If yuan positions surge, the central bank can use instruments such as repurchases and central bank bills to soak up excess liquidity," Yi said.
He added that the exchange rate of China's currency will remain basically stable, with greater flexibility, as it's already very close to the equilibrium level.