China will not change its current prudential monetary policy and is determined not to flood the economy with excessive liquidity and credit, Premier Li Keqiang reiterated in the State Council executive meeting on Wednesday, Yicai.com reported.
After the central bank released its January financial data last week, among which new loan and money aggregate both hit historical highs, some people expressed concern that monetary policy might return to the old path of using excessive liquidity and credit to stimulate economic growth.
Premier Li denied the latter and responded that having two Reserve Requirement Ratio cuts in January was what the market expected and also because China’s RRR is higher than any major economy in the world.
After the RRR cuts, the overall scale of social financing has increased largely, according to Li, adding, it is the rapid growth of bill financing and short-term loans which has propped up the total number.
This could also lead to a potential crisis such as arbitrage, Li warned.