PBC building in Beijing (Photo: VCG)

As China's central bank will maintain a prudent and neutral monetary policy, additional targeted measures are expected to be announced to keep liquidity reasonably ample for the economy, especially the private sector, experts said.
The People's Bank of China (PBC) on Friday released its third-quarter monetary policy implementation report, a critical indicator for the market and other players in the economy to guage the PBC's upcoming moves.
Compared with the previous report, the third-quarter report made important adjustments in terms of future monetary policy, risk prevention measures and foreign exchange policy.
The PBC has denied that considerable funds are stuck in banks, saying the excess reserves rate of China's banking system is just about 1.5 percent. It said that most funds in banks have been channeled into the real economy.
Tan Xiaofen, deputy dean of the School of Finance at the Central University of Finance and Economics, said that after the last round of financial supervision, growth in "the credit extended by banks to non-bank institutions," a key indicator of whether funds are indeed stuck in banks, has fallen to almost zero. 
The central bank said it will keep liquidity "reasonably ample" and make its policy more flexible, pre-emptive and targeted. The report for the second quarter used the term "effectively" instead of "targeted."
"The PBC's report shows that monetary policy will remain neutral, but more targeted and flexible control measures on liquidity may be evident," Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times on Sunday.
"If liquidity appears to be tight, it is likely that additional liquidity will be freed up," Dong said. "There will be more flexible and temporary measures."
As part of deepening interest-rate reform, the report said the PBC will "enhance interest rate adjustment capability and improve the conduction of central bank policy interest rates to the finance sector and the real economy."
Tan told the Global Times on Sunday that it's very likely there will be new measures to encourage financial institutions to support the real economy, especially the private sector.
The central bank said it would encourage banks to lend more to private companies, which account for 60 percent of China's GDP and 80 percent of urban employment.
China may set up credit risk mitigation tools for private companies' debt financing, Tan said.
The PBC said that it will keep the yuan exchange rate basically stable at a reasonable and balanced level.
According to the report, the next phase of exchange rate policy will "enhance macro-prudential management when necessary." A phrase that appeared in the second-quarter report - "increasing the market's role in determining the exchange rate" - was deleted.
The marketization of the yuan exchange rate is China's consistent stance. Two-way movements of the exchange rate in reasonable ranges have been the central bank's policy. The report is intended to stabilize market expectations, Dong said.
To keep the national economy stable, it's necessary to strengthen macro-prudential management and enhance exchange rate flexibility, Tan said.
In terms of the development of China's exchange rate and foreign exchange market, the only way to raise risk awareness among market participants is to ensure the exchange rate has resilient two-way movements, Tan added.