* China c.bank chief says economy growing at reasonable pace
* Says present monetary policy appropriate
SHANGHAI, June 28 China's central bank sought to
quell fears that a credit crunch could hobble activity, saying
on Friday that authorities would ensure reasonable lending
growth and stable markets as the world's second-largest economy
adjusts to slower growth rates.
In his first public remarks since a cash crunch last week
saw interest rates spike to record highs, Governor Zhou
Xiaochuan said the People's Bank of China would adjust liquidity
in the banking system to keep financial markets stable.
Without making direct references to the cash crunch, Zhou
said monetary policy settings were appropriate and the PBOC
would balance the need to reform China's economy with the need
to keep growth on an even keel.
"China's economic growth has slowed but is still within a
reasonable range," Zhou told a financial forum in Shanghai.
"China's current economic and financial operations and
consumer prices are generally stable, all of which show prudent
monetary policy is appropriate and producing good results."
Rates at which banks lend to one another shot as high as 28
percent last week after central bank allowed the supply of cash
in the money market to tighten significantly.
Analysts said the central bank played hardball to force
banks to pull back from risky lending in a booming informal
loans market, and to slow credit growth.
Although that stance would benefit China in the long run by
reducing risks in its financial sector, economists said in the
near term it could further pressure an economy which is on track
for its slowest growth in more than 20 years.
Indeed, a growing group of analysts believe China could fall
short of its 7.5 percent growth target this year.
Zhou said Beijing would balance the competing demands.
"On one hand, we will guide financial institutions to keep
reasonable credits growth while arranging their debts and
maturity structures properly to support the structural
adjustment and upgrading of real economy," he said.
"On the other hand, we will also give a full play to a
variety of tools to adjust market liquidity at appropriate time
to keep markets generally stable, creating good monetary
conditions for stable financial market and economic
The central bank has made it clear this week that cash
conditions were being tightened and lenders should improve money
management and lending practices, though stressed it was ready
to prevent a full-blown credit market crisis.
Many economists believe that China's cash squeeze would
result in a de facto policy tightening by raising borrowing
costs, although banks say that has yet to happen and they have
not cut back lending as a result of the crunch.