Regulator to act fast on inflation
By Li Yanping (Shanghai Daily)Updated: 2007-04-02 08:46 China may need to further tighten liquidity and curb inflation this year as the country's trade surplus expands and utility prices rise, a central banker said.
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China's trade surplus, which ballooned 74 percent last year to a record US$177.5 billion, drove the country's foreign-exchange reserves to more than US$1 trillion and flooded the economy with cash. China raised interest rates to the highest level in almost eight years and increased banks' reserve ratio five times in eight months to slow investment.
"The major policy project for this year is to continue to strengthen efforts to soak up the excess liquidity caused by foreign-exchange inflow and to maintain a moderate money supply growth required by economic growth," Wu said.
The measures may include further reserve ratio rises and more aggressive open market operations and more currency swaps. Rapid money supply increases caused by the expanding trade surplus and rising prices in grain and other utilities will further pressure the country's inflation in 2007, Wu said.
China's inflation, tracked by the consumer price index, may jump to 2.35 percent in the first
quarter from last year's 0.8 percent, driven by food and property price
increases, according to the central bank research bureau. The central bank,
which aims to cap the country's inflation below three percent and broad money
supply, or M2, under 16 percent this year, may be forced to sell more central
bank bills and order banks to boost reserves to curb credit.
"The M2
broad money supply growth normally leads the growth of CPI by 10 to 12 months, which means last year's M2 growth will
continue to add pressure on this year's inflation, and we will closely monitor
the trend," Wu said.
China's broadest measure of money supply grew 17.8 percent in February from a year earlier, the fastest pace in six months, as trade surplus surged, the central bank data show.
"The central bank aims to strengthen measures to limit commercial lender's ability to expand loans and to control the level of their excess reserves put at the central bank," Wu said.
The People's Bank of China may raise interest rates at least once in the next six months, and may order banks to set aside extra money as reserves at least two more times this year, according to a Bloomberg News survey of 24 economists last week.
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