Central bank vows to prevent economy overheating (Xinhua) Updated: 2006-08-10 14:04
China's central bank has said it will continue the "rational" restriction of
money supply and loans as the main weapon against an overheating economy.
In its latest quarterly monetary report, the People's Bank of China said the
economy was expected to grow at a "slightly slower" pace, but would remain on a
fast and stable track. "Great attention should be paid to risks posed to
the Chinese economy by the fast growth of fixed assets investment, excessive
money supply and loans," the bank report said. Investment-driven growth
soared to 11.3 percent in the second quarter, the highest rate in a decade.
The report said outstanding loans of all financial institutions rose by
606.81 billion yuan (75.85 billion U.S. dollars) by the end of June from a year
earlier. This was despite a raft of government measures, including an
interest rate hike in late April and regulations to limit foreign investment in
real estate, which were meant to control the building of factories, luxury
apartments and other projects. The central bank raised the reserve ratio
for commercial banks by 0.5 percentage points on July 5. The move has brought
the reserves that most banks are required to keep on deposit with the central
bank to eight percent, restricting their lending capacities. The report
said it was only a "fine-tuning" measure, rather than an "extremely potent drug"
as claimed in some media reports. It did not confirm whether another
interest rate hike was likely. But it warned of mounting inflationary
pressure, though the consumer price index, China's leading inflation index,
climbed just 1.3 percent in the first half of the year. Booming
investment and exports would push up prices of capital goods, and rising
resource prices would have a knock-on effect on consumer prices, although
industrial overcapacity and falling grain prices would combine to ease
inflation. The bank said China's trade surplus could be reduced by
increasing imports and market liberalization. "(China) should not realize
balanced international payments solely by revaluing its currency," it said.
U.S. manufacturers have maintained demands for a sharp appreciation of the
Chinese currency Renminbi, while arguing that an undervalued Chinese currency
favored Chinese exports and hurt the U.S. job market. The central bank
reiterated in the report that the exchange rate of Renminbi would remain
"basically stable." (For more biz stories, please visit Industry Updates)
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