People's Bank of China says it will guide lending rates

June 25, 2013 at 11:51 AM

SHANGHAI, June 25 (UPI) -- People's Bank of China deputy director Ling Tao said the central bank would "guide market interest rates," in the wake of volatile lending conditions.

As inter-bank lending rates soared, the central bank said Monday there was enough liquidity in the financial system. That was seen as a signal the country's new leaders were willing to let economic growth simmer down.

It simmered down quickly with the Shanghai composite index dropping 5.3 percent Monday.

The Wall Street Journal reported Tuesday Ling, a deputy director of the Shanghai branch, said policymakers would "continue to closely monitor changes in liquidity in the interbank market."

"And we will step up communication with the market to stabilize expectations and guide market interest rates into a reasonable range," he said.

That appeared to mollify investors. The Shanghai index was off more than 5 percent for the second consecutive day, but closed off 0.2 percent as rumors of a central bank statement circulated, the Journal said.

Interbank lending rates, hovering at 2 percent to 3 percent before June, went ballistic last week, with some lending rates topping 30 percent, the Journal said.

By Tuesday, the overnight lending rate banks charge each other had eased back to 5.83 percent from Monday's 6.65 percent.

Ling did not say what interest rate the central bank would target as a policy goal. But the bank had signaled it had its hand on the tiller, which calmed markets Tuesday.

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