China's central bank says bond market risks in check as it steps up monitoring

FILE PHOTO: A woman walks out of the headquarters of the People's Bank of China (PBOC), the central bank, in Beijing November 20, 2013. REUTERS/Jason Lee/File Photo

SHANGHAI (Reuters) - China’s central bank said on Monday risks in its bond market were generally controllable and the default rate was not high, but it had nevertheless set up a unit to monitor domestic and international financial risk and stabilize market expectations.

In a statement posted on its website, the People’s Bank of China also said financial market liquidity was “reasonable and stable”.

A three-year deleveraging drive is making progress, but has also pushed up borrowing costs and tightened credit, seen as a factor in some private defaults and hampering local government investment.

As of early June, 12 companies had defaulted on principal or interest payments on 19 bonds worth a total of 17.4 billion yuan this year, according to data compiled by Reuters.

Last week, the PBOC declined to follow the U.S. Federal Reserve’s rate rise with even a symbolic increase - a break from recent practice that signaled potential policy fine-tuning ahead.

The PBOC gave no details about the remit or composition of the financial risk monitoring group, nor did it say exactly when it was established.

As of the end of May, the value of defaulted corporate credit bonds that companies had failed to repay was 66.3 billion yuan, or 0.39 percent of the total, it said.

Overall, a stable and neutral monetary policy had achieved fairly good results, the PBOC statement said.

Reporting by John Ruwitch and Li Zheng; Editing by Simon Cameron-Moore and Darren Schuettler