China warns of inflation pressures
(Reuters)Updated: 2007-06-28 11:21
 A woman customer buys pork at a market in Yichang, central China's Hubei Province in this June 5, 2007 photo. [newsphoto]  |
China's central bank is concerned by inflationary pressures and is determined to make use of a range of monetary policy tools to contain price increases, a senior official says.
A recent jump in consumer inflation, which hit 3.4 percent in May from a year earlier, raised expectations among many analysts that the People's Bank of China (PBOC) could raise interest rates or carry out other tightening measures soon.
Yi Gang, assistant governor of the central bank, gave no indication of the timing of any such move, but reasserted the PBOC's focus on prices.
"The central bank has a firm determination to keep inflation in check," Yi told reporters Wednesday.
"We have many tools in our toolbox, including raising reserve requirements, interest rates and also open market operations," Yi said.
"We will make comprehensive use of these tools to fight against inflation and to keep growth in prices and the economy stable."
Yi said asset prices, though important, took a back seat when the central bank debated whether to tighten policy.
"We are paying keen attention to asset prices, but they are not the decisive factor when determining macroeconomic control measures. We are mainly concerned with inflation, which in China mainly means CPI," Yi said.
He said the recent pick-up in CPI was mainly due to increases in pork prices and other food.
Over the long run, the central bank aimed to keep real interest rates positive, Yi said.
The recent spike in inflation has pushed real deposit rates into negative territory, encouraging people to shift their money out of bank deposits into the red-hot stock market.
"Over a relatively long period of time, it's better to keep real interest rates at a positive level. Negative real interest rates will have a negative impact on the economy," Yi said.
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