China to sustain prudent monetary policy: analysts

Analysts have predicted that China will not ease its current monetary policy, China Securities Journal reported on Thursday.

The State Council, or China's Cabinet, said at a meeting on Wednesday that the government must guide credit funds to support the country's real economy and sustain a prudent monetary policy with rational aggregates.

Lu Zhengwei, chief economist with the Industrial Bank, said the meeting showed that the central government urges the financial sector to fuel the real economy so as to tackle overcapacity and support agriculture, small and micro enterprises and consumption.

He forecasted that the monetary policy will not be changed at present, and the demand for expanded bond issuance is aimed at encouraging further development of the bond market.

Peng Wensheng, chief economist with the China International Capital Corporation, said fine-tuning of monetary policy was possible in the short term, but intense stimulus through macro policy changes is unlikely to happen.

Reform is crucial and is the only way for the future growth of China's economy, with particular areas of focus expected to include finance, land, production factor price, administrative approval, income distribution and household registration system, Peng added.

The meeting also highlighted innovative use of the foreign exchange reserve, which amounted to trillions of U.S. dollars but was regarded as making limited contribution to the competence of Chinese banking businesses abroad.

However, the Shanghai Interbank Offered Rate (SHIBOR) overnight rate surged 578.40 base points to 13.44 percent on Thursday, and fixing Repo 7-day, another gauge of interbank interest, gained 292.9 base points to 11 percent, suggesting the market remains concerned about a liquidity shortage.