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Andrew Batson, Shen Hong and Owen Fletcher From: The Wall Street Journal November 03, 2010 6:46AM
A fruit vendor prepares his display of oranges sold along a back alley in Beijing. Picture: AFP Source: AFP
CHINA'S central bank, fresh from its first interest-rate increase in nearly three years, says it remains concerned about inflationary risks.
The central bank also indicated the problem could be amplified by the easy-money policies in the US and other developed countries.
In its third-quarter monetary policy report published last night, the People's Bank of China said it will "continue to guide monetary conditions gradually back to a normal level" from crisis-response mode as it faces "relatively big" uncertainties over price trends.
In contrast to the US Federal Reserve, which is widely expected to announce a new program of bond purchases tomorrow to stimulate the economy, China has started to withdraw its stimulus policies. Over the past year, the central bank has reduced the amount of new loans banks can make, and in mid-October it raised benchmark interest rates by a quarter percentage point.
In its first public explanation of the interest-rate increase, the central bank said the move was aimed at "managing inflation expectations and consolidating the results of real-estate adjustment policies". The latter is a reference to a series of measures introduced by other arms of the government to contain speculation in real-estate markets and make housing more affordable.
Both general inflation and frothy real-estate markets remain risks, the PBOC said.
"The international economic recovery is still relatively slow, China's economy is growing rapidly, and inflation expectations and the upward pressure on prices cannot be ignored," it said.
The central bank said rising labour and services costs in China could potentially boost inflation expectations.
The PBOC said loose monetary policies in major economies will likely lead to large capital inflows into fast-growing emerging economies, though it didn't specifically mention the US.
"Against a background of ample liquidity and strong inflation expectations, the surplus funds will find many different outlets, so the potential inflation pressures need a high level of attention," it said.
The PBOC said it needs to make its policy more flexible and targeted while further strengthening management of inflation expectations. It also reiterated its pledge to further improve the yuan exchange-rate formation mechanism, with reform based on market supply and demand and the reference to an undisclosed basket of currencies.
The PBOC on October 19 increased the benchmark one-year interest rate on loans and deposits by a quarter of a percentage point, its first rate rise since December 2007, when inflation was more than 6 per cent.
http://www.theaustralian.com.au/bus...-inflation-risks/story-e6frg90x-1225947007083
CHINA'S central bank, fresh from its first interest-rate increase in nearly three years, says it remains concerned about inflationary risks.
The central bank also indicated the problem could be amplified by the easy-money policies in the US and other developed countries.
In its third-quarter monetary policy report published last night, the People's Bank of China said it will "continue to guide monetary conditions gradually back to a normal level" from crisis-response mode as it faces "relatively big" uncertainties over price trends.
In contrast to the US Federal Reserve, which is widely expected to announce a new program of bond purchases tomorrow to stimulate the economy, China has started to withdraw its stimulus policies. Over the past year, the central bank has reduced the amount of new loans banks can make, and in mid-October it raised benchmark interest rates by a quarter percentage point.
In its first public explanation of the interest-rate increase, the central bank said the move was aimed at "managing inflation expectations and consolidating the results of real-estate adjustment policies". The latter is a reference to a series of measures introduced by other arms of the government to contain speculation in real-estate markets and make housing more affordable.
Both general inflation and frothy real-estate markets remain risks, the PBOC said.
"The international economic recovery is still relatively slow, China's economy is growing rapidly, and inflation expectations and the upward pressure on prices cannot be ignored," it said.
The central bank said rising labour and services costs in China could potentially boost inflation expectations.
The PBOC said loose monetary policies in major economies will likely lead to large capital inflows into fast-growing emerging economies, though it didn't specifically mention the US.
"Against a background of ample liquidity and strong inflation expectations, the surplus funds will find many different outlets, so the potential inflation pressures need a high level of attention," it said.
The PBOC said it needs to make its policy more flexible and targeted while further strengthening management of inflation expectations. It also reiterated its pledge to further improve the yuan exchange-rate formation mechanism, with reform based on market supply and demand and the reference to an undisclosed basket of currencies.
The PBOC on October 19 increased the benchmark one-year interest rate on loans and deposits by a quarter of a percentage point, its first rate rise since December 2007, when inflation was more than 6 per cent.
http://www.theaustralian.com.au/bus...-inflation-risks/story-e6frg90x-1225947007083
