Tags: China | PBOC | Signals | Tightening | Growth | Cools

China PBOC Signals Tightening May Come Even as Growth Cools

Tuesday, 03 May 2011 10:14 AM

China’s central bank said controlling inflation is its top priority, even after a manufacturing survey indicated that growth may slow in the second-biggest economy.

“Stabilizing prices and managing inflation expectations are critical,” the People’s Bank of China said in a first- quarter monetary policy report published on its website today. Bank reserve requirements have no “absolute ceiling,” the report said, restating an April 16 comment from Governor Zhou Xiaochuan.

Premier Wen Jiabao’s government aims to cool the fastest inflation since 2008 and rein in property prices without undermining the economy’s expansion. A manufacturing index slid in April from March, indicating that growth may slow after the central bank raised interest rates and reserve requirement and allowed the yuan to appreciate at a faster pace.

China’s economic growth and employment are at “reasonable” levels, the central bank said in today’s report. It added that it will increase exchange-rate flexibility, control liquidity in the financial system, and use interest rates to manage inflation expectations.

‘Increasing Pressure’

“Given the loose monetary policies of major economies and gradual recovery of global economy, commodity prices continue to rise, and global inflation expectations are rising significantly,” the People’s Bank of China said. “China is seeing increasing pressure of imported inflation.”

Zhang Liqun, a senior researcher at the State Council’s Development Research Center, said May 1 that the manufacturing data showed an increased likelihood that growth will slow. China’s gross domestic product expanded 9.7 percent in the first quarter from a year earlier and the World Bank last week forecast a full-year expansion of 9.3 percent.

The yuan has strengthened above 6.5 per dollar for the first time since 1993, reserve requirements for the biggest banks stand at a record 20.5 percent, and the one-year lending rate is 6.31 percent.

Inflation was an annual 5.4 percent in March, exceeding the government’s full-year target of 4 percent for a third month.

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China s central bank said controlling inflation is its top priority, even after a manufacturing survey indicated that growth may slow in the second-biggest economy. Stabilizing prices and managing inflation expectations are critical, the People s Bank of China said in a...
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Tuesday, 03 May 2011 10:14 AM
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