(Yicai Global) July 25 -- Given the apparent tightening of liquidity and the marked increase in interest rates in the money market, since the banks' lending rates have also begun to rise, monetary policy should no longer be further tightened, China's Financial News published by the People's Bank of China (PBOC), China's central bank, said today.

Citing Bank of Communications chief economist Lian Ping, the article said that in the second half of the year, prudent and neutral monetary policy tone should not be changed, but should be stable as the main principle, while taking into account the three goals, namely, the steady growth of the real economy, financial deleveraging and overall control of systemic financial risks.

The present economic situation is quite different from the one that prompted a moderate and neutral monetary policy in the end of 2016. At present, financial deleveraging has achieved phased results and systemic financial risk is overall controllable. At this point, the monetary policy may need to have more focus on the steady growth of the real economy rather than further tightening, the article suggested.

Against the backdrop of downward pressure on the economy in the second half of the year, the macro adjustment of finance is necessary to carry out the reverse operation for stability. The country should implement an active, timely and appropriate hedging to ease pressure on the real economy from rise in financing costs, and ensure the smooth operation of the economy. While keeping the benchmark deposit and lending rates stable, the country should maintain basic stability of the money market and control money market interest rates at the current level to avoid further rise in the cost of financing of the real economy. 

The article also said that in the second half, the yuan exchange rate should remain basically stable, and further enhance exchange rate flexibility. The country should give full play to the role of "counter cyclical adjustment factor," appropriately hedge against the pro-cyclical fluctuation in market sentiment and alleviate the potential for herd behavior that may exist in the forex market, and guide and manage market expectations rationally.

The country should continue to strengthen macro and micro prudential management, strictly control speculative and illegal capital outflows, and strive to maintain the basic balance in foreign exchange supply and demand in the market. In the long term, the country should adhere to the direction of market oriented exchange rate reform, gradually intensify market's decisive role in exchange rate, and further enhance the yuan exchange rate flexibility. China should expand the floating range of the yuan exchange rate and improve market-based supply and demand, two-way floating and flexible exchange rate mechanism in an orderly fashion, it called for. China should steadily and orderly advance the process of internationalization of the yuan and the opening up of capital account.