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Central Bank: Economy won't see galloping inflation

(Xinhua)
Updated: 2008-05-16 09:10

Despite global inflation, the Chinese economy is unlikely to see galloping inflation thanks to its own growing impetus, said Su Ning, vice governor of the People's Bank of China (PBOC), on Thursday.

It is imperative for the Chinese government to pay close attention to inflation pressure in the future, Su told a one-day forum on Sino-Indian financial cooperation.

Globally, due to the continuous depreciation of the US dollar and strong growth of some emerging economies, prices of energy, raw material and farm products have kept rising, which has pushed up inflation rates worldwide, he said.

Over the last year or so, China has been faced with mounting pressure on inflation.

China's consumer price index, the main gauge of inflation, has risen from above three percent in March last year, to above 6 percent in August, and to 8.5 percent year-on-year last month, as a result of the robust national economy and domestic food price rises coupled with soaring international energy prices.

China, however, is still capable of warding off galloping inflation because the world's fourth largest economy, which has enjoyed robust growth in the last few years, has a favorable fiscal situation and enterprises' profitability has significantly improved, said the vice governor.

He said China's macro-economic policies at present are primarily aimed to guard against a shift from structural price rises to evident inflation.

Regarding the fiscal policies, Su said it is necessary to maintain stability and continuity. As to the monetary policies, he noted that the main task is to create a favorable environment for curbing inflation.

Earlier on Monday, the PBOC announced that it would raise the reserve requirement ratio for commercial banks by half a percentage point to curb excess liquidity and ease inflation.

This will be the fourth such move this year, and it will lift the country's reserve requirement ratio to a new high of 16.5 percent as of May 20.

"The rise is aimed at strengthening liquidity management in the banking system and steering reasonable growth in bank credit," the central bank said in a statement.

The PBOC raised the reserve requirement ratio on January 25, March 25 and April 25, respectively, on top of 10 such moves in 2007. It also raised interest rates six times last year.

The new tightening measure was unveiled on the same day as the National Bureau of Statistics said the country's inflation rate hit 8.5 percent in April, up from 8.3 percent in March and only slightly lower than the nearly 12-year high of 8.7 percent in February.