China Calls for Controlled ‘Tweaks’ to Current Monetary Policy

(Bloomberg) -- China’s government said monetary policy should stay prudent and neutral, and officials should "properly control the intensity" when fine-tuning current policies.

The economic and financial situation and external environment should be fully considered when adjusting monetary policy, and tweaks to that should be well controlled, according to a statement posted on the State Council’s website Monday. The statement summarized a meeting of the Financial Stability Development Committee led by Vice-Premier Liu He, held Friday.

Officials discussed key future works at the meeting, and called for efforts to defuse financial risks and prevent black swan events, while maintaining the stable and healthy development of the stock, bond and foreign exchange markets.

The meeting also repeated pledges to increase targeted policy support for the real economy and stressed better coordination between departments, especially between the financial sector, the Ministry of Finance and the National Development and Reform Commission.

The meeting underscores the balancing act Chinese policymakers are attempting -- they’re trying to add support to combat an economic slowdown while avoiding overly loose monetary policy. They are also trying to maintain risk-prevention efforts while not hurting markets’ credit appetite and funding to the real economy.

There were reports the central bank was draining interbank liquidity last month, and borrowing costs in the money market have risen since a low in early August, after dipping below the interest rate of seven-day reverse repurchase agreements offered by the central bank.

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net

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