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BEIJING: China's central bank said it will maintain a monetary policy aimed at bolstering the economy, but will also start applying "fine-tuning", in what analysts see as a sign of emerging caution.
"The People's Bank of China will... resolutely continue to carry out its moderately loose monetary policy," it said in its second quarter policy implementation report posted on its website late Wednesday.
The bank has on several occasions in recent weeks stressed its monetary policy would continue, in an apparent attempt to address investor fears that credit will be tightened.
The report caused the stock market to drop 2.44 per cent by noon.
Chinese banks extended a record 7.4 trillion yuan (US$1.1 trillion) in new loans in the first half of the year as they heeded government calls to support growth amid the global downturn.
However, the central bank did suggest it may adjust the flood of loans, amid concerns they have been funnelled into the asset markets for quick profit, rather than being put to use to bolster the economy.
"We will impose some market-based fine-tuning measures according to domestic and foreign economic trends and price changes," the central bank said.
"We should appropriately handle the relationship between supporting economic growth and preventing and resolving financial risks," it added.
Andy Xie, an independent economist based in Shanghai, said this indicated that the central bank has turned more cautious and the huge new loan growth was unlikely to continue in the second half.
"Economic and asset bubbles... are quite evident now. This definitely has caused some divergence in top policy makers' opinions ... due to concern over the consequences when the bubbles burst," he told AFP.
"Public expectation about inflation is strong and self-fulfilling, and this will drive the bubbles even bigger."
The central bank has stepped up efforts to rein in liquidity in the banking system by issuing more central bank bills, a short-term bond to buy back excess funds at commercial banks, he said.
The bank's data showed only 480 billion yuan in central bank bills were issued in the first three months of this year, but the figure jumped to 930 billion yuan in the second quarter.
The Chinese economy grew 7.9 per cent in the second quarter after 6.1 per cent in the first, which economists said was largely underpinned by unprecedented lending.
- AFP/yb
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