China's central bank is tightening liquidity despite its stated commitment to a loose monetary policy, the head of one of the country's leading lenders said, according to state media.
The People's Bank of China has become more cautious even though government guidelines remain unchanged, Xiao Gang, chairman of Bank of China, the nation's top forex lender, was quoted as saying on Caijing magazine's website.
"Interest rates are at a comparatively high level considering the negative consumer price index, but there is no sign the central bank will lower them," Xiao was quoted as saying in the report posted on Sunday.
Xiao added more than five trillion yuan (730 billion dollars) in new loans that commercial banks extended since the start of the year were not all channelled into the real economy.
Xiao did not say where he believed the wayward loans went, but analysts believe a part of it may have been funnelled into the stock market for quick profits, according to the report.
It is necessary for banks to keep money in reserve so they can respond to sudden policy changes, Xiao said.
He also expected the growth of new loans will moderate during the rest of the year.
The Chinese government has called on banks to launch joint efforts to stimulate the economy amid the global crisis and they have responded with record lending.
Xiao worked as vice director of the central bank in charge of monetary policy and forex arrangements before heading to Bank of China in 2003.
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