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Enough liquidity in market to sustain healthy growth

China Daily | Updated: 2021-11-04 06:59
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A worker counts Chinese currency RMB at a bank in Linyi, East China's Shandong province. [Photo/Xinhua]

Over the seven working days between Oct 20 and Oct 28, China's central bank provided 1.1 trillion yuan ($172 billion) for the market through open market operations, bringing the total net funds (after deducting maturing funds) to 850 billion yuan.

The People's Bank of China has intensified open market operations in recent days, and since late October it has increased fund supplies with the aim of stabilizing the capital market and sending a clear message that sufficient liquidity will be maintained in the market.

The central bank has been carrying out seven-day reverse repurchase operations. Which means it will operate flexibly using a variety of tools to meet the market's reasonable fund needs.

The seven-day reverse repurchase operation rate at the end of last week was 2.2 percent, the lowest since 2003, and the recent market interest rate is close to the policy interest rate, reflecting the smooth running of the capital market.

On the whole, there is enough liquidity in the market, and the macroeconomic environment has not reached the threshold where a reserve requirement ratio reduction would be necessary.

China is one of the few economies in the world that follows a normal monetary policy and refrains from resorting to a loose monetary policy.

Instead, it vows to stick to normal monetary policy for as long as possible and promote sustainable and higher-quality development through targeted policies and reforms.

China's economic growth has been within a reasonable range, as reflected by the 9.8 percent year-on-year growth in GDP in the first three quarters of 2021. In the end of September, M2(amount of money in circulation in notes and coins plus non-interest-bearing bank deposits and savings accounts) increased by 8.3 percent year-on-year, with an average growth rate of about 10 percent over the past two years, and social financing stock increased by 10 percent year-on-year, basically matching the growth of the nominal GDP.

This shows China's current domestic monetary and credit environment continues to support its economy.

Given the challenges facing China on the internal and external fronts, it is necessary for the authorities to prevent excessive liquidity in the market, as it could lead to a rapid rise in the macro leverage ratio and commodity prices, and prompt capital to shift from the real economy to other sectors.

The authorities should also remain vigilant against inflationary pressures and rising inflation overseas.

-Economic Daily

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