China to keep policy “moderately loose”; hint at yuan appreciation

The People's Bank of China said it would maintain "moderately loose" monetary policy for the foreseeable future in its quarterly monetary policy statement published on Wednesday.

The central bank said its broadly accommodative stance would be retained to safeguard steady economic growth in the face of adjustments in the financial sector. Xinhua, China's state-run news agency, quoted the central bank as saying that it would "make policy more flexible and sustainable and keep it abreast of the economic climate and price changes."

The report noted that real GDP grew by 8.9% in the third quarter of the year, and by 7.7% over the first three quarters overall. However, the central bank was mindful of the role played by exports, citing weakness in private investment as a factor in its cautious outlook.

Leading media interpreted a shift in the statement's language on exchange-rate policies as signifying the possibility of an appreciation of the renminbi, with the central bank saying "changes in international capital flows and the trends of major currencies" would have an impact on its own decisions.

The renminbi exchange-rate is controlled through a managed float following the removal of its dollar peg earlier this decade. Though the renminbi has appreciated against the dollar since the removal of the peg, Beijing has sought to curb its appreciation in order to boost demand for exports. The perceived role of global imbalances in the financial crisis has lent weight to voices in the international community who argue Beijing should allow the currency to appreciate. Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said last week that the currency is undervalued and the US Treasury and Japan have expressed similar views in the past.

Click here to read the monetary policy statement (available in Mandarin only)