Others News
- Official urges freer energy prices
Date: 5-Nov-2007 Sources: (Shenzhen Daily)
THE country needs to press ahead with liberalizing energy prices even if it means extra inflationary pressure in the short term, a senior central bank official said Saturday.
Soaring crude oil prices had prompted refiners to cut production rather than swallow mounting losses by selling at State regulated, below-market prices.
'In the short term it will slightly increase inflationary pressure, but if we postpone the reform distortions will accumulate and the losses will be bigger. So I think we need to actively push ahead with energy price reform,'Yi Gang, an assistant governor of the People's Bank of China, told a financial forum.
By distortions, Yi meant a mismatch between supply and demand caused by holding down prices.
The National Development and Reform Commission (NDRC), the main economic planning agency, estimated that last week's increase would add just 0.05 percent to consumer inflation. That is because bus and taxi fares are also controlled by the State.
Inflation was 6.2 percent in September, just below August's decade-high of 6.5 percent.
The PBOC has raised interest rates five times this year to curb inflation and prevent real bank deposit rates from sinking too far into negative territory.
Markets expect a sixth increase before long. Asked why the central bank had not already acted, Yi told reporters after his speech that it was still taking stock of the situation.
'Our principle is that we need to look back and see what has happened. But more important is to look forward and observe,'he said.
The PBOC has also been busy draining cash from the banking system to mop up liquidity injected when it buys dollars to hold down the yuan's exchange rate.
Yi said these sterilization operations, begun in 2003, were aimed at buying time for structural changes to the economy including boosting domestic demand, reforming the tax system and liberalizing resource prices.
Turning to the banking system, Yi said lenders should be permitted to branch into other financial sectors because companies will rely less on loans and more on capital market funding in years to come.
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