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Central bank mulls monetary policy

By Zhang Lu (China Daily )
Updated: 2007-06-06 10:22

The central bank might consider using monetary policy to cope with the recent surge in food prices and maintain the stability of the currency, central bank Governor Zhou Xiaochuan said yesterday.

"We are paying close attention to the recent rises in pork and egg prices," Zhou told reporters on the sidelines of a banking forum in Beijing.

"There are many reasons behind the price changes, including money supply, international market movements, domestic food supply and demand, and so on," Zhou said.

"Food prices weigh heavily on the consumer price index (CPI). As long as they are having an impact on the value of the yuan, the central bank will adopt monetary policy to maintain its stability," he said.

However, "the central bank still needs to look at the overall CPI for May", to decide its next policy moves, Zhou said.

The CPI figures are due to be announced early next week.

The CPI rose 3.3 percent in March and 3 percent in April, reaching the 3 percent benchmark that had been set by the central bank.

The recent surges in the price of pork and eggs, coupled with continuous rises in the price of grain and other agricultural products, are putting pressure on inflation, causing concerns for policymakers.

Food prices account for a third of the CPI basket.

Statistics from the Ministry of Commerce showed wholesale pork prices in 36 major cities in early May climbed 43 percent from a year earlier. Egg prices rose 31.6 percent year on year.

A research report released by Goldman Sachs late last month indicated that the surging price of pork and eggs would probably push the rise in the CPI above 4 percent in the coming months.

The investment bank has accordingly adjusted its CPI forecast from 2.6 percent to 3.6 percent for the whole year.

It also said that it is necessary for the People's Bank of China to raise interest rates to check potential inflation.

Asked whether the central bank would increase interest rates again in the near future, Zhou said it would not rule out the possibility of using various monetary tools.

The central bank has already raised interest rates twice this year and five times required commercial banks to set aside more money as reserves to cool inflation, fixed-asset investment and stock market speculation.