China Must Tolerate Some Volatility in Market Rates, PBOC Says


09/02/2014 08:50 AST

China’s central bank said reasonable volatility in money-market interest rates must be tolerated as it manages liquidity in the country’s financial system to rein in credit growth.

“When the valve of liquidity starts to tame and curb excessive credit expansion, money-market rates, or the cost of liquidity, will reflect that,” the People’s Bank of China said in its fourth-quarter monetary policy report released today.

China’s benchmark repurchase rate surged to a record in June after the central bank refrained from addressing a cash crunch in the interbank market as it cracked down on shadow finance. The PBOC said today that while it will use tools including the reserve-requirement ratio and short-term lending facilities to ensure “appropriate liquidity,” it won’t bankroll a growth model that relies on investment and debt.

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