Tighter monetary policy in bid to curb inflation
By Wang Yanlin |
December 4, 2010, Saturday
|
Print Edition
Print Edition
China is to adopt a prudent monetary policy, ending the relatively loose stance adopted after the global financial crisis.
Macroeconomic policies will become more targeted, more flexible and more effective, paving the way for China to tighten lending controls and raise interest rates.
The decision was made during a meeting of top leaders of the Chinese Communist Party chaired by President Hu Jintao yesterday.
Meanwhile, China will maintain its proactive fiscal policy, reflecting the government's wish to continue to encourage investment for sustaining growth, while taking tightening monetary measures to cool inflation.
It had been expected that policy makers would announce such a shift, while the Party's endorsement marks a decisive turning point.
"It means that all sorts of monetary policy tools to control liquidity and to tame inflation can be used now," said Peng Ken, a Citigroup economist.
"In the past we've been clearly focusing on administrative measures. Going forward we could be using more policy adjustments via interest rates," Peng said.
Lu Zhengwei, an analyst at the Industrial Bank Co, said an interest rate increase will now be unavoidable this month.
One interest rate increase is widely anticipated as China's Consumer Price Index, the main gauge of inflation, surged to a 25-month high of 4.4 percent in October.
China's inflation rate may continue to expand in November as input costs at the factory gate climbed to a 28-month high last month.
China has, in practice, been tightening monetary policies to stabilize inflation.
In November, the People's Bank of China twice ordered banks to set aside more money as reserves, pushing the reserve requirement ratio to a record 18 percent. In October, the central bank lifted the interest rate to ease price increase and curb asset bubbles.
But administrative measures were more frequently used as China last month released stockpiles of pork and sugar, demanded harsher punishment for speculation in agricultural produce, and offered temporary subsidies for poor families.
Some proposed measures, such as price controls, triggered strong criticism from economists who warn that such measures could prove counter-productive, leading businesses to limit the supply of goods and paving the way for more serious inflation.
A tightened monetary policy, economists said, would be a sensible move as excessive liquidity on the market contributed the most to inflation.
The National Development and Reform Commission said the current rise in prices was driven by speculation in agricultural produce, a field favored by investors disappointed by the stock market and an under-performing housing market.
The stock market responded calmly yesterday because the policy move has been long expected. The Shanghai Composite Index fell 0.04 percent while other major indices even reported slight gains.
Macroeconomic policies will become more targeted, more flexible and more effective, paving the way for China to tighten lending controls and raise interest rates.
The decision was made during a meeting of top leaders of the Chinese Communist Party chaired by President Hu Jintao yesterday.
Meanwhile, China will maintain its proactive fiscal policy, reflecting the government's wish to continue to encourage investment for sustaining growth, while taking tightening monetary measures to cool inflation.
It had been expected that policy makers would announce such a shift, while the Party's endorsement marks a decisive turning point.
"It means that all sorts of monetary policy tools to control liquidity and to tame inflation can be used now," said Peng Ken, a Citigroup economist.
"In the past we've been clearly focusing on administrative measures. Going forward we could be using more policy adjustments via interest rates," Peng said.
Lu Zhengwei, an analyst at the Industrial Bank Co, said an interest rate increase will now be unavoidable this month.
One interest rate increase is widely anticipated as China's Consumer Price Index, the main gauge of inflation, surged to a 25-month high of 4.4 percent in October.
China's inflation rate may continue to expand in November as input costs at the factory gate climbed to a 28-month high last month.
China has, in practice, been tightening monetary policies to stabilize inflation.
In November, the People's Bank of China twice ordered banks to set aside more money as reserves, pushing the reserve requirement ratio to a record 18 percent. In October, the central bank lifted the interest rate to ease price increase and curb asset bubbles.
But administrative measures were more frequently used as China last month released stockpiles of pork and sugar, demanded harsher punishment for speculation in agricultural produce, and offered temporary subsidies for poor families.
Some proposed measures, such as price controls, triggered strong criticism from economists who warn that such measures could prove counter-productive, leading businesses to limit the supply of goods and paving the way for more serious inflation.
A tightened monetary policy, economists said, would be a sensible move as excessive liquidity on the market contributed the most to inflation.
The National Development and Reform Commission said the current rise in prices was driven by speculation in agricultural produce, a field favored by investors disappointed by the stock market and an under-performing housing market.
The stock market responded calmly yesterday because the policy move has been long expected. The Shanghai Composite Index fell 0.04 percent while other major indices even reported slight gains.
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