Monetary tightening on tap

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(Shanghai Daily)
Updated: 2007-07-04 09:09

China's central bank said yesterday that it will "moderately" tighten monetary policy to control investment and lending and prevent the economy from overheating this year.

The statement was posted on the bank's Website after a monetary policy meeting for the second quarter.

Three weeks ago, Premier Wen Jiabao called for a "moderate tightening," prompting speculation that the central bank would raise interest rates or further curb bank lending.

The People's Bank of China is concerned that a failure to cool investment and control the flood of cash from record trade surpluses may lead to asset bubbles, overcapacity and idle factories.

"The government may wait for economic data for the first half of this year before another round of tightening measures," Wang Qian, an economist at JPMorgan Chase & Co in Hong Kong, told Bloomberg News. "We expect the central bank to raise banks' required reserve ratios and benchmark interest rates again, as soon as within the next three months."

China has raised interest rates twice this year and ordered banks to set aside larger reserves five times. The benchmark one-year lending rate is 6.57 percent and the deposit rate is 3.06 percent.

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T he central bank reiterated pledges to continue to reform its exchange-rate system and to give the market a bigger role in setting the yuan's rate.

The People's Bank of China will "strengthen" the coordination of monetary policy with industrial, trade and financial measures aimed at boosting domestic consumption and controlling growth in fixed-asset investment, the statement said.

The central bank said it will keep prices "basically stable" and keep lending growth at a "reasonable" pace.

China's economy faces problems including an "irrational" structure, inefficient growth and imbalances in international payments, the statement said.

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