China Has Scope to Raise Interest Rates, Zhou Says
By Luo Jun, Zhao Yidi and Klaus Wille
April 14 (Bloomberg) — China’s central bank chief, who raised interest rates six times last year, said there’s still room for the country’s lending and deposit rates to increase to help cap the fastest inflation in more than a decade.
“The anti-inflation policy is a combination of both quantitative measures and price measures,” Zhou Xiaochuan said in an interview with Bloomberg News in Washington yesterday. “There’s room for using interest rates further.”
The comments by Zhou, 60, underscore Chinese Premier Wen Jiabao’s pledge to use what he called “forceful” steps to mop up the excess cash adding pressure on inflation. Consumer prices soared 8.7 percent in February on food and fuel costs, making it harder for the government to meet its target of capping 2008 inflation at 4.8 percent.
The People’s Bank of China may need to raise the one-year lending rate from 7.47 percent and the deposit rate from 4.14 percent at least once in 2008, according to a March 12 survey of 12 economists by Bloomberg News.
The Beijing-based central bank is yet to raise rates this year. Higher rates in China after cuts by the U.S. Federal Reserve may attract more speculative money into an economy with $1.68 trillion of foreign-exchange reserves and where excess cash had spurred speculation in equities and real estate.
Capital Flows
“We also need to look at the situation of capital flows,” as well as “the interest-rate policy in the U.S. and Europe” to decide “which instrument fits into the current economic situation the best,” Zhou said.
The central bank has raised the proportion of deposits that banks must set aside as reserves to a record 15.5 percent. It’s also added price controls and allowed faster appreciation of China’s currency.
The yuan’s gains are “to some extent” related to anti- inflation policies, the central banker said.
The currency has climbed 4.3 percent this year versus the dollar after a 7 percent increase last year. A stronger yuan makes imports cheaper and may help to tame the trade surplus that’s pumping cash into China’s economy.
To contact the reporter for this story: Luo Jun in Washington at at luo6@bloomberg.net; Zhao Yidi in Washington at at yzhao7@bloomberg.net; Klaus Wille in New York at kwille@bloomberg.net.
Last Updated: April 13, 2008 21:38 EDT
