Banking News
- Central banker can't rule out hiking rates
Date: 25-Jun-2007 Sources: (Shenzhen Daily)
THE country's inflation may rise despite tighter monetary policy and a further increase in interest rates cannot be ruled out, central bank governor Zhou Xiaochuan said Saturday.
He also said the People's Bank of China was keeping a close eye on the country's surging stock prices, even if they did not amount to a clear bubble, and he urged investors to be cautious.
Food prices, especially pork, have shot up in China, stoking concerns about inflation, which hit a 27-month high of 3.4 percent in May, and leading to market expectations of further monetary tightening.
'We've adjusted interest rates but (inflation) may go up a little bit,'Zhou told reporters on the sidelines of the Bank for International Settlements' annual meeting in Basel, Switzerland.
Asked about further interest rate increases, he said: 'I don't exclude the possibility.'
Zhou said interest rates had been adjusted accordingly in advance of May's inflation figures, which were in line with the bank's expectations.
After the May consumer price data was released last week, Premier Wen Jiabao said the government was prepared to tighten policy further to restrain the economy and inflation.
Zhou said that while he was concerned about inflation, he thought it was 'still under control?and added that China's fast growing economy might slow 'a little bit?in the second quarter.
The central bank has raised interest rates four times in the past 14 months, most recently in May.
Some government economists and outside analysts have said two or three further rate increases this year could be needed, with the inflation-adjusted deposit rate currently in negative territory.
The benchmark borrowing rate, on one-year deposits, is 3.06 percent, while China's consumer price index is expected to rise about 3.3 percent in 2007, according to a research body under the China National Development and Reform Commission, China's top economic planning agency.
Zhou said the central bank was closely monitoring stock markets in China, where the benchmark Shanghai Composite Index has gained about 50 percent since the start of the year.
'We are closely watching the stock market in China. We are not sure whether there is a clear bubble,'he said. 'We worry that if the price-earnings ratio is too high, then investors should take care about their investment.'
Frenzied retail buying has driven the valuation of Chinese stocks far above those in developed markets, feeding worries that a potential bubble could burst and damage the economy.
Zhou also reaffirmed the central bank's long-standing commitment to introduce gradual change in its exchange rate and foreign currency reserve policies.
'The reform direction is to gradually allow the renminbi to be fully convertible,'he said.
He said the management of China's US$1.2 trillion-plus foreign exchange reserves, the world's biggest, would be adjusted in a gradual, controlled and active manner.
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