CHINA is facing strong inflationary pressure, but will tread cautiously in raising interest rates, said Yi Gang, a deputy governor with the People s Bank of China.
Yi told a business conference in Hong Kong yesterday that he was confident the government would be able to keep annual average consumer price inflation to 4 percent this year.
We will see high (inflation) numbers in the first half of the year because of the base effect. Inflation in the second half will be lower, Yi said. So for the whole year, we will be able to meet the 4 percent goal.
China s inflation exceeded expectations at 4.9 percent in the year to February, near its fastest level in more than two years, and looks set to accelerate further in coming months as the economy races ahead and prices of food and commodities such as oil remain high.
The deputy central bank chief said he was comfortable with current interest rate levels, adding that raising them too high would attract hot money inflows.
I think they (interest rates) are now at a comfortable level. In the medium-term future, we will maintain a positive interest rate, Yi said. And also you know that higher interest rates will attract more hot money into China, so that is another consideration.
Chinese officials fear rising speculative inflows, lured by widening interest rate differentials and expectations of a firmer yuan, could complicate their fight against inflation.
So far, the central bank has relied mainly on quantitative tightening measures, notably hiking banks reserve requirements, to mop up excessive liquidity in the economy.(SD-Agencies)
