(Yicai) Nov. 28 -- The People's Bank of China will prevent and resolve financial risks in key areas, actively yet prudently defuse local debt risks with financial support, and firmly defend its bottom line whereby no systemic financial risks will occur, according to the central bank’s latest monetary policy report.

The PBOC will resolutely correct pro-cyclical market behavior by pursuing a managed floating exchange rate regime based on market supply and demand with reference to a basket of currencies, according to the China Monetary Policy Report for the third quarter that was released yesterday.

In this way it will also prohibit acts that disturb market order, forestall risks of exchange rate overshooting, and prevent single-direction forecasts and self-reinforcement to keep the Chinese yuan exchange rate basically stable, the report said.

The central bank will improve the transmission mechanism of monetary policy, enhance the stability of financial support for the real economy, promote the circulation between the financial sector and the economy to keep prices reasonable and stable.

It will continue to deepen the market-oriented interest rate reforms, unleash the potential of the loan prime rate reform, give play to market-oriented deposit rate adjustments to maintain the order of deposit and loan markets and encourage financial institutions to reduce loan rates, the report added.

Since the beginning of the year, the central bank has introduced a dynamic adjustment mechanism for first-home mortgage rates by allowing more cities to either remove or lower the interest rate floor on first-home loans, according to the report. As of the end of September, 24 cities had done away with a lower limit for mortgages on first-home purchases, while 95 cities had reduced the interest rate floor by 10 basis points to 40 bps below the national floor.

Interest rates on more than CNY22 trillion (USD3.1 trillion) of existing mortgage loans had been trimmed by around 73 bps to a weighted average of 4.27 percent as of the end of September. And annual interest payments by borrowers have almost halved to CNY170 billion (USD24.9 billion), benefiting about 150 million people from 50 million families.

In the future, the central bank will implement a series of measures to continue to lower existing mortgage rates, ease the interest repayment burdens on borrowers so as to boost investment and consumption, better meet fixed demand for housing and the need to improve living conditions, as well as promote the stable and healthy development of the real estate market, the PBOC said.

Editor: Kim Taylor