China's central bank has pledged to tame consumers' inflation
expectations as the Consumer Price Index (CPI) rebounded to match
the highest level in 11 years.
"We will make full use of the price tools in macro control to
keep consumers' inflation expectations at a stable level," Zhou
Xiaochuan, governor of the People's Bank of China (PBOC) said in a
report published in the Financial News on Wednesday.
Price tools usually refer to interest rate adjustments.
The CPI, a barometer of inflation, rose 6.5 percent from a year
earlier in October, tying the decade high in August, the National
Bureau of Statistics said Tuesday.
This doubles the official target of three percent for the whole
of 2007, sparking fears of another round of monetary
tightening.
"We will coordinate the use of interest rates and exchange rate
policies and try to avoid keeping the real interest rate negative
for a long time," Zhou was cited as saying.
So far this year, the PBOC has increased interest rates five
times, with the latest on September 15, when the one-year savings
rate rose to 3.87 percent.
However, the rate of return from bank deposits is still less
than the inflation rate, suggesting an erosion of purchasing power
for consumers. That sparked an exodus of money from banks to the
stock market, whose index has almost doubled so far this year, even
after a major correction in the past month.
Core CPI
In spite of the accelerating CPI, the country is not
experiencing a full-fledged inflation, said Yao Jingyuan, chief
economist of the NBS said, according to the Xinhua News
Agency.
"One of the key indicators of full-fledged inflation is a price
increase at a comprehensive level. As far as the core CPI is
concerned, we are still at a safe zone," he said.
Core CPI excludes food and energy prices, which are prone to
seasonal factors.
Surging CPI in October was mainly due to a 17.6 percent hike in
food prices. Nonfood items rose only 1.1 percent.
Central bank's Zhou said the top priority of his agency will be
preventing the economy from overheating. He vowed to take a more
aggressive approach in macro control.
Various tools would be used to enhance the management of
liquidity, including open market operations and bank reserve ratio
adjustments, he said.
In the past weekend, the central bank announced commercial banks
must put 13.5 percent of their deposits in the PBOC as reserves.
That marked the highest level ever and the ninth increase this
year.
(China Daily November 15, 2007)
