China will keep tightening monetary policy to prevent the economy from
overheating and will stick to its long-standing policy of gradual yuan
appreciation, the central bank said on Tuesday.
"China should appropriately tighten monetary policy amid stability," the
People's Bank of China said in a summary of the second-quarter meeting of its
monetary policy committee.
The phrasing echoed that used by Premier Wen Jiabao on June 13.
Although some analysts interpreted Wen's remarks as portending a tougher
monetary policy, the central bank has since kept interest rates and banks'
required reserves unchanged.
The PBOC's brief statement used familiar language to restate China's policy
towards the yuan.
"China will perfect the managed floating exchange rate system to allow market
supply and demand to play a fundamental role in determining the yuan's exchange
rate and to keep the yuan basically stable at a balanced and reasonable level,"
the PBOC said.
The yuan has been scaling successive highs in recent days. The currency rose
as high as 7.5929 per dollar on Tuesday, marking a 6.8 percent gain since it was
revalued by 2.1 percent two years ago and freed from a dollar peg to float in
China is enjoying its fifth straight year of double-digit economic growth.
Figures for the second quarter due on July 18 are expected to show that gross
domestic product expanded at around the first-quarter pace of 11.1 percent.
"China should strengthen and improve macroeconomic controls to prevent
relatively fast economic growth from overheating," the central bank said.
Annual consumer price inflation rose to 3.4 percent in May, above the central
bank's 3 percent target, although non-food inflation remains subdued.
The PBOC said it would resort to a range of monetary policy tools to keep
inflation in check and achieve "reasonable" growth in money and credit. To that
end it would strengthen the management of banking system liquidity.
The central bank has already raised interest rates twice this year and
required reserves four times to hold down inflation and mop up cash pouring into
the economy from China's record trade surplus. It last raised rates on May 18.
Zhao Qingming, an economist with the China Construction Bank in Beijing, said
the central bank would have to work even harder to soak up liquidity this month
because the trade surplus probably surged in June.
"The trade surplus will definitely be huge in June as exporters scrambled to
make shipments before cuts in export tax rebates went into effect. That will
translate into huge foreign capital inflows for China," he said.