BEIJING China's central bank on Friday urged commercial lenders to strengthen liquidity management and set a reasonable pace on lending, even as it pledged to adjust liquidity to help maintain appropriate credit growth this year.
Rising money market rates and bond yields in recent months indicate the People's Bank of China is committed to curbing high debt levels in the economy to head off potential financial risks, but there is little sign of abrupt policy tightening.
"We will use various liquidity management tools in a flexible way and improve the system to appropriately adjust liquidity to maintain reasonable growth in credit and social financing," Zhang Xiaohui, head of the central bank's monetary policy department, wrote in the China Finance magazine, run by the central bank.
The PBOC has pledged to keep monetary policy largely stable this year with timely fine-tuning in line with economic changes.
The central bank warned in a statement after a meeting on money and credit conditions that commercial banks were still keen to expand loans, which have grown rapidly in January.
"Demand for cash will rise significantly as the Spring Festival is approaching," the central bank said on its website, www.pbc.gov.cn.
"Monetary and credit departments will issue timely risk alerts and guide financial institutions to strengthen liquidity, asset and liability management and reasonably set the pace on lending to prevent assets from expanding too quickly," it said.
China's money rates jumped this week as liquidity dried up ahead of the Spring Festival holiday, with traders watching to see if the central bank would maintain its passive stance and allow another cash crunch to unfold.
Analysts believe the central bank is likely to make measured use of policy tools, such as short-term liquidity operations (SLO), to help lenders weather sporadic cash strains this year.
The Shanghai Securities News reported on Wednesday that the top four state banks speeded up new lending in January, handing over 320 billion yuan ($52.8 billion) in the first 12 days of the month, versus 270 billion over the same period a year earlier.
The newspaper also cited sources saying new loans could top 1 trillion yuan in January.
China's potential growth rate is falling as the population ages, and the economy faces increased resource and environmental constraints and other structural problems, Zhang said.
The central bank must strike a balance between promoting growth, structural adjustments and reforms, while preventing financial risks, she said.
"Faced with these new situations and new problems, the People's Bank of China has always paid attention to appropriately handling liquidity management and interest rate changes, neither relaxing nor tightening monetary policy," she said.
Since late June, commercial banks have gradually adjusted their asset and liability management models to ease mismatch problems and slow interbank business, she added.
The reformist central bank was accused of worsening June's market turbulence by keeping the purse strings too tight. But it has since sought to improve its communication with the market.
Demand for cash is strongest near the end of each quarter as banks rush to meet regulatory requirements, such as loan-to-deposit and reserve ratios, and pay out maturing shadow financing products - a factor that has worsened cash crunches.
The PBOC will push financial reforms, including widening the issuance of interbank certificates of deposit (CD) and increasing the two-way float of the yuan, Zhang said.
There are increased positive signals in China's economy amid signs that growth is stabilizing risks and challenges remain, she added.
Premier Li Keqiang said on Friday the government would keep economic growth within a reasonable range, state radio reported.
($1 = 6.0557 Chinese yuan)
(Reporting by Kevin Yao; Editing by Jacqueline Wong)