China should not loosen its prudent monetary policy and the markets should expect more interest rate increases as the government continues to battle inflation as its top priority, a central bank adviser warned at a forum in Shanghai on Saturday.
Xia Bin, an adviser to the People's Bank of China, also called for a more determined move to curb the soaring property market, such as imposing a harsher tax regime by introducing a progressive tax on speculative gains in home prices and unveiling a nationwide property tax after trials in Shanghai and Chongqing.
He said that the measures to cool home prices would take one to two more years to accomplish.
Xia said as the actual interest rate in the country is still negative even after the latest rate increase on April 6, "the possibility of further interest rate hikes can't be ruled out."
"The year of 2011 is a year of policy adjustment, and such adjustments shouldn't be shaken when problems such as inadequate capital to small and medium sized enterprises occur," Xia told an HSBC wealth management forum in Shanghai. "The policy shouldn't and can't be loosened this year."
The one-year loan rate is now at 6.31 percent, up 0.25 percentage point. The one-year deposit rate also rose by the same margin to 3.25 percent.
Tommy Xie, an OCBC Bank economist, echoed Xia's view. Xie said he didn't expect the monetary policy to be loosened unless the red flag on inflation is turned off.
"Inflation still holds policy priority," Xie said. "A policy turnaround could occur only if inflation retreats into safe levels."
Inflation remains high. In February, China's consumer price index, the main gauge of inflation, grew 4.9 percent from a year earlier, the same rate as in January. That's above the government's 2011 target of 4 percent inflation.
To make matters worse, some economists are predicting that inflation may have accelerated to 5 percent in March. The official March inflation data are set to be released on Friday.
Lu Zhengwei, an Industrial Bank economist, said he expects another reserve requirement ratio hike for banks this month.
