China Central Bank Still Worried About Inflation

Discussion in 'China' started by IBRIS, Nov 4, 2010.

  1. IBRIS

    IBRIS Senior Member Senior Member

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    Andrew Batson, Shen Hong and Owen Fletcher From: The Wall Street Journal November 03, 2010 6:46AM

    [​IMG]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
     
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  3. pmaitra

    pmaitra Moderator Moderator

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    I am no economist and hence would like a clarification from those who know better.

    How is this inflation thing related to the artificially devalued currency of PRC, the Yuan? Can someone please explain?

    -Thanks and Regards-
     
  4. Vladimir79

    Vladimir79 Defence Professionals Defence Professionals

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    The RMB is artificially devalued by their FX reserves when they buy foreign currency and take money out of circulation. China has been steadily increasing their reserves to keep it pegged to a falling dollar. They keep interest rates low so they can lend more money to increase economic activity. PBOC has been increasing money supply at a frantic pace every year which has put massive pressure on inflation, some of it has been absorbed into real-estate which has relieved some of the pressure on consumer prices, of course property prices are through the roof.

    The relation... China has no control over monetary policy to check inflation if it is pegged to the USD, so they must raise interest rates and buy their own currency to deal with it. Doing this will increase the value of the RMB. CCP has been very reluctant to do this because they feel they will not be competitive in the export market without low prices.
     
  5. badguy2000

    badguy2000 Respected Member Senior Member

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    in laymen's terms,
    appreciation of Yuan is helpful to control inflation.
     
  6. tony4562

    tony4562 Tihar Jail Banned

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    China doesn't have an inflation problem, at least not on the same scale India is facing now.
     
  7. badguy2000

    badguy2000 Respected Member Senior Member

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    well, inflation is still there in China,if compared with the one int he past decade.

    for example,
    apples are my daily breakfast. the price of apple here now is 10 RMB/KG now while it was only 6-7RMB last year.
     

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