Chinese central bank to ‘fine-tune’ policy amid liquidity crunch

Chinese central bank to ‘fine-tune’  policy amid liquidity crunchThe People's Bank of China, China's central bank, has indicated that the country might have to `fine tune' its monetary policy as the economy faces liquidity crunch.

The remarks indicate that the authorities in the country are more likely to loosen monetary policy to improve the liquidity position in the world's second largest economy. Following the monetary policy committee's second-quarter meeting in Beijing, the central bank indicated that the country must be ready for fine tuning its monetary policy.

The comments were released after an indicator of interbank funding availability rose to the highest since at least 2003 on 21 June, 2013. The borrowing costs have increased in the Chinese economy due to stricter controls to check illegal capital inflows and shadow banking as well as a slowdown in the Chinese economy.

The People's Bank of China did not announce the measures that would be adopted by the central bank and also did not discuss this month's developments in the statement. The central bank only said that it would implement a prudent monetary policy in the country to improve the situation. Premier Li Keqiang has asked the banks in the country to control risky investments and authorities are working to prevent shadow banking.

"We will optimize financial-resource allocation to make good use of newly added credit and to activate use of granted credit to support economic restructuring, transformation and upgrading in a more forceful way," the PBOC said in the statement.