Economy

Rate reforms can tame inflation: China central bank

(Agencies)
Updated: 2010-12-30 09:58

BEIJING - China should hasten the liberalization of its interest rate market to rein in accelerating inflation in the world's second-biggest economy, Reuters reported Wednesday, citing a senior Chinese central bank official.

According to the report, Sheng Songcheng, the head of statistics at the People's Bank of China, said Beijing should lift the ceiling on deposit rates as it reforms the nation's financial markets by easing government control.

Higher deposit rates will favor savers and drain the market of excess cash, seen by many as the main driver of inflation, which hit a 28-month high of 5.1 percent in November, the report said.

"China should allow the upward floating of deposit rates. It will gradually enable the market to price in expectations on interest rate rises," he said in an article published on the central bank's website, it reported.

"That will help change the negative real deposit rates and curb inflation."

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The central bank should consider asset prices and China-US interest rate differentials when setting monetary policies, the report cited Sheng as saying.

Speculative demand in China's property market has pushed prices to record peaks. This increasingly worries the government as high consumer prices have stirred social unrest in the past, it reported.

"The central bank should not only pay close attention to prices of general goods, but also asset prices," Sheng said.