Prudent policy to fight inflation
Source: Agencies |
December 25, 2010, Saturday
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Print Edition
Print Edition
China's central bank kept up its rhetoric against inflation and excess liquidity yesterday by saying it will deploy a range of policy tools to head off inflationary pressures and asset bubbles.
Hu Xiaolian, vice governor at the People's Bank of China, said monetary policy in the world's second-largest economy needs to be prudent to tame inflation, which hit a 28-month high of 5.1 percent in November.
"The most important task of our monetary policy next year is to steer overall money supply back to normal," Hu told Chinese bankers.
"Bank credit expansion must be in step with main economic targets, especially when it comes to the targets for economic growth and inflation," she said.
Hu said the central bank will use a combination of policy tools, including interest rates, reserve requirements and open market operations, to steer policy back to normal.
She also said that the central bank will step up its use of differentiated increases in reserve requirements for selected Chinese banks.
The central bank has raised reserve requirements six times so far this year in a bid to drain excess cash from the banking system to curb inflation.
The reserve ratio has reached a record high of 19 percent for some of the country's biggest banks.
The remarks will likely reinforce market speculation that an imminent rise in China's interest rates or reserve requirements is on the cards.
Many investors believe China is set to tighten policy soon in a strike against inflation, but investors are divided over whether the move will come before the end of the year.
The Bank of Communications, China's fifth-largest lender, yesterday said it expects the central bank to increase reserve requirements by at least 200 basis points next year.
The central bank's policy stance is a vote of confidence on the country's strong economic growth.
"We will be able to maintain stable and relatively fast economic growth by implementing prudent monetary policy," Hu said.
Hu Xiaolian, vice governor at the People's Bank of China, said monetary policy in the world's second-largest economy needs to be prudent to tame inflation, which hit a 28-month high of 5.1 percent in November.
"The most important task of our monetary policy next year is to steer overall money supply back to normal," Hu told Chinese bankers.
"Bank credit expansion must be in step with main economic targets, especially when it comes to the targets for economic growth and inflation," she said.
Hu said the central bank will use a combination of policy tools, including interest rates, reserve requirements and open market operations, to steer policy back to normal.
She also said that the central bank will step up its use of differentiated increases in reserve requirements for selected Chinese banks.
The central bank has raised reserve requirements six times so far this year in a bid to drain excess cash from the banking system to curb inflation.
The reserve ratio has reached a record high of 19 percent for some of the country's biggest banks.
The remarks will likely reinforce market speculation that an imminent rise in China's interest rates or reserve requirements is on the cards.
Many investors believe China is set to tighten policy soon in a strike against inflation, but investors are divided over whether the move will come before the end of the year.
The Bank of Communications, China's fifth-largest lender, yesterday said it expects the central bank to increase reserve requirements by at least 200 basis points next year.
The central bank's policy stance is a vote of confidence on the country's strong economic growth.
"We will be able to maintain stable and relatively fast economic growth by implementing prudent monetary policy," Hu said.
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