China's central bank is right to stand its ground even as its decision to tolerate a credit squeeze that raises the prospect of slower growth in the world's second biggest economy rattles markets, strategists told CNBC.
"We think the PBOC [People's Bank of China] is doing the right thing, to prick a bubble before it's too late," Kelvin Chan, head of country research at Euromonitor International told CNBC Asia's "Squawk Box."
Rampant credit growth is seen as one of the biggest risks facing China's economy. According to research from Credit Suisse, China's credit-to-gross domestic product (GDP) ratio surged to more than 170 percent last year from just over 110 percent in 2008.
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Ratings agency Fitch has warned that the scale of credit in the economy was so extreme that it would find it difficult to grow its way out of the excesses.
"There's always a risk in terms of miscalculation, but if China has any kind of real chance to fix its problems, and we all know that China is sick in its credit system, then they [policymakers] better do it now rather than later," Chan added.
Local lenders in China have faced a severe liquidity strain in recent weeks, with interbank lending rates hitting double digits last week, raising concern that efforts to rein in credit growth and steer the economy away from a dependence on credit-driven investment could go wrong.