The central bank has put some hard numbers on the switch it announced at the end of last year to more prudent monetary policy. The People’s Bank of China, in its quarterly monetary policy report, says it wants to slow the growth in the money supply to 16% in 2011. Last year, the money supply grew by 19.9% on its broad M2 measure. The bank noted that “inflation pressure is quite big” and says that controlling inflation will move up its policy agenda.
The relatively modest proposed slowing of monetary growth suggests the bank can only move cautiously to reduce the excess liquidity in the system. Interest rates, bank reserve requirements and open-market operations are the tools the bank says it has to rein in money supply and bank credit growth. So expect all to be continued to be deployed during the year — and the central bank to struggle to dampen inflationary expectations.