China’s central bank has downplayed its decision in January to reduce liquidity in the banking system that caused the country’s worst cash crunch in nearly six years, while fueling worries about a gradual tightening of monetary policy to curb speculation and asset bubbles, reported the South China Morning Post.
In its fourth quarter monetary policy implementation report, the People’s Bank of China (PBOC) suggested financial markets should pay less attention to the adjustments in the volume of its liquidity operations and more to the interest rate adjustments on those operations.
The PBOC said on Monday its “prudent” monetary policy would strike a balance between economic recovery and risk prevention, while being flexible, targeted and appropriate, reported the SCMP.
Last month, markets were rattled by the PBOC’s decision to conduct a net withdrawal of RMB 6.34 billion ($983 million) in its regular open market operations – the first reduction in four months – especially given demand for cash was usually high ahead of the Lunar New Year holiday.
