PBOC to stay prudent and sees deposit insurance as a priority

China's central bank will continue with a prudent monetary policy despite a recent economic slowdown and quicken the setting up of a deposit insurance system as it prepares to further liberalize interest rates, according to its annual report released yesterday.

"Facing complicated and changeable internal and external environments, its macro-economic control will focus on stabilizing, innovating and keeping consistent policies," the People's Bank of China said.

The PBOC will promote deposit insurance as a priority this year, and Governor Zhou Xiaochuan said in March that rates will be fully liberalized within two years.

The report is an indication the PBOC will continue with steady monetary policies and reforms amid the weaker-than-expected economic growth this year.

The PBOC warned about the uncertain outlook for external demand, volatile capital flows and financial risks on the economy.

Still, it is confident the China economy will "stabilize with increasing momentum" this year as the government simplifies administrative intervention, cuts tax and enhances the market's role in distribution of resources.

In contrast to the PBOC's prudent stance, the Ministry of Finance last week revealed plans to accelerate spending on agricultural and infrastructure projects.

In May, fiscal spending rose 25 percent year on year to 1.3 trillion yuan (US$209 billion), above a 9.6 percent rise in the first four months, the ministry said in a statement yesterday.