(Yicai Global) Nov. 17 -- China’s central bank said price increases are moderate, but the country must remain alert for a possible rebound in inflation.

The People’s Bank of China will “pay attention to the possibility of future inflation, especially changes on the demand side,” the regulator said in its third-quarter monetary policy report released late yesterday. 

China’s inflation has been tame this year compared with other countries. Consumer prices rose 2.1 percent last month from a year earlier, according to official figures, while producer prices fell for the first time since December 2020, dropping 1.3 percent.

The PBOC will strive to implement a prudent monetary policy, not overissue currency, keep reasonable and efficient liquidity, guide development banks to make good use of financial tools and the CNY800 billion (USD112.2 billion) new credit loan quota, it said.

Furthermore, the bank will encourage commercial banks to grant more medium- and long-term loans, and maintain the reasonable growth of currency supply and social finance.

Regarding the exchange rate, the PBOC said it will continue to adhere to a managed floating exchange rate system based on market supply and demand, adjusted with reference to a basket of currencies, and will insist that the market plays a decisive role. And the bank will take steps to stabilize expectations, make the exchange rate more flexible, and dampen big fluctuations in the yuan to keep it stable at a reasonable and balanced level.

The yuan has depreciated by about 11 percent against the US dollar so far this year.

After recently brining out new policies to support the real estate sector, the PBOC will end as scheduled the policy reducing the lower limit of interest rates on first home loans that was implemented in September, it noted. 

To boost the sluggish real estate market, the PBOC and the China Banking and Insurance Regulatory Commission jointly released a document in September allowing cities where new home prices dropped between June and August to decide whether to maintain, lower, or cancel the lower limit of interest rates for new first mortgages before the end of the year.

“The policy not only enables qualified city governments to take measures according to their own situations, making good use of policy tools, and supports rigid housing demand, but also reflects that houses are for living in, not for speculation, and keeps the real estate market developing steadily and healthily,” the PBOC said.

Many Chinese cities, including Jining, Wenzhou, and Qingyuan, took action according to the policy, the PBOC said.

The interest rate on new individual housing loans was 4.3 percent last month, down 4 basis points from September and 1.3 points from the end of last year. The PBOC cut the interest rate on individual provident fund loans for first homes by 15 bips last month, the first reduction since August 2015.

Editor: Futura Costaglione