CHINA should focus on increasing domestic demand and rebalancing its economy rather than relying too much on monetary policy to fight inflation, central bank Deputy Governor Yi Gang said in remarks published yesterday.
Yi told a State-affiliated magazine that monetary policy options were likely to be less effective amid excessive liquidity in the global financial markets.
While there had been some impact from a series of monetary and administrative policy actions China took in the face of the U.S. Federal Reserve s latest round of monetary easing, dubbed QE2, the potential role of such policies was becoming more limited, Yi told Shanghai Securities News.
He said raising interest rates would curb inflation but it would also attract hot money inflows into China, where required bank reserve ratios had already been lifted to historic highs.
Capital controls would work in the short term, but their effectiveness would weaken over the long term, Yi said.
More than just an economic issue, rapid money and credit growth has become a political concern, helping propel Chinese consumer inflation to its fastest in more than two years.
(SD-Agencies)
