China is currently studying the option of another possible
interest hike as its next move to further tighten monetary policy,
but a combined policy pack may be needed to curb inflation, said Zhou Xiaochuan, governor of the People's Bank
of China (PBOC) yesterday.
Zhou said at a news briefing on the sidelines of the Third
China-US Strategic Economic Dialogue (SED) held in Beijing
yesterday that surging domestic consumer prices and recent US
interest rate cuts would have a "considerable influence" on Chinese
monetary policy. PBOC would "seriously consider" the situation, he
said.
The rising consumer price index (CPI) has been mainly driven by
soaring food prices. Whether and how the CPI could be curbed
through monetary policy was being studied, Zhou said, admitting
that the issue could be contentious. Simply cutting back on the
money supply and lifting the currency price (by interest rate
hikes) might be insufficient, he said.
China's consumer price index (CPI) for November rose 6.9 percent
from a year earlier, according to statistics released from the
National Bureau of Statistics on Tuesday morning. Food prices rose
18.2 percent last month over November 2006.
As to the recent interest rate cuts by the US Federal Reserve,
Zhou said China is concerned with possible indirect effects that
could diminish the effectiveness of China’s monetary policy.
Secretary of US Department of the Treasury Henry M. Paulson,
leading the US delegation to the Strategic Economic Dialogue (SED),
yesterday urged China to enhance the elasticity of the renminbi's
exchange rate. In response to US requests for faster appreciation,
Zhou said both countries need to adjust their policies to address
the imbalances between the pair.
On top of enhancing foreign exchange rate elasticity, the
Chinese side needs to enlarge domestic demand, further develop the
services sector, and adjust energy prices. At the same time, the US
needs to exert some efforts from its own side, including enlarging
resident savings and reducing excessive consumption, the central
bank chief said.
The yuan central parity exchange rate hit a new high today of
735.68 yuan per $100, the 78th time it has broken a previous record
this year.
Zhou said that China backed a strong dollar and would also back
US efforts to recover from the sub-prime credit crisis, because a
weak greenback would worsen the world’s excessive liquidity
situation, which could add more pressure to China's inflation.
(China Daily December 13, 2007)
