China to pursue prudent monetary policy to check debt risk, asset bubble

PBOC withdrew money through open market operations for the second day to check rising debt risks

China's monetary policy will be "prudent and neutral" this year which will prevent a rapid rise in debt levels, asset bubbles and keep growth on the track of the world's second largest economy, the central bank's chief economist has said.

China's monetary policy will be prudent and neutral in 2017, which will help prevent a rapid rise in debt levels and asset bubbles, Ma Jun, chief economist at the People's Bank of China (POBC), said.

The policy stance will also help keep economic growth at a reasonable pace and ensure inflation is at a stable level, Ma said in the statement released to state-run Xinhua news agency on Friday.

According to remarks Ma made at a meeting in Singapore, China is seeking to further open up its bond market and create conditions for inclusion of its bonds in major global indices, the report said.

Meanwhile, the PBOC withdrew more money through open market operations for the second consecutive day on Friday in a bid to prevent rapid increase in debt levels and asset bubbles as well as capital outflows.

The PBOC conducted 30 billion yuan (about $4.37 billion) of reverse repos, a process by which the central bank purchases securities from banks through bidding with an agreement to sell them back in the future.

The move saw a net 20 billion yuan drained from the market Monday, offset by 50 billion yuan in maturing reverse repos, official media reported on Friday.

The operations included seven-day reverse repo priced to yield 2.35 per cent, 14-day contracts with a yield of 2.5 per cent, and 28-day agreements with a yield of 2.65 per cent, a PBOC statement said.

Ma said the State Administration of Foreign Exchange was working to improve rules allowing overseas non-central bank institutional investors to participate in the domestic foreign exchange derivatives market.

The central bank will also explore ways to expand trading hours at the interbank bond market and enhance international cooperation on bond market infrastructure, Ma said.

PBC also came under criticism in recent months as China's forex reserves biggest in the world dropped down below $3 trillion for the first time in six years sparking concerns over their rapid decline.

Forex reserves stood at about $2.99 trillion last month, down from about $3.01 trillion in December last year and the government has taken several measures to clamp down on capital outflows.

Also the measures slowed down China's big push forChina's outbound direct investment (ODI) as it dropped 35.7 per cent year on year to $7.73 billion last month as China clamped down on capital outflows to halt the decline of its forex reserves.

China's non-financial ODI dropped 35.7 per cent year on year to 53.27 billion yuan ($7.73 billion) in January this year, official data said.