The People's Bank of China, the country's central bank, said it
will use multiple tools, including the interest rate, to improve
monetary control and rein in excess liquidity.
"(We will) use the interest rate in a flexible way and ...
gradually bring out the important role of prices in monetary
regulation," according to its monetary policy for the fourth
quarter of 2006 posted on its website on Friday.
The People's Bank of China said in the report the inflationary
pressure was "on the rise", compared with its outlook for the third
quarter that inflationary pressure "remained".
It warned that pressure from rising prices was increasing.
Analysts said the central bank may raise the interest rate as
the consumer price index (CPI) continues to rise.
The annual CPI growth for 2006 was 1.5 percent on the previous
year, but it was 2.8 percent for December, raising concern that the
central bank may take measures in the coming months.
Stephen Green, senior economist with Standard Chartered Bank,
told the Chinese-language press on Wednesday that there is an 80
percent possibility the bank will raise the rate by 27 basis points
in the first half of the year.
Shanghai-based Shenyin and Wanguo Securities said in a recent
report that the central bank may raise the rate soon after economic
and financial statistics are released in mid-February.
Zhao Xijun, an economist from the Renmin University of China,
said the next two months would be crucial. "The decision to raise
the interest rate will depend on the situation in the next two
months," he told China Daily. "If the CPI exceeds the 3
percent mark in January and February, the central bank may take
some measures."
Regarding liquidity, the central bank said in the report that it
would "improve its management". "We will use different ways,
including open market operation and raising reserve requirements,
to effectively control liquidity in the banking system," it
said.
Since April, China has raised the reserve requirement ratio, or
the ratio of money banks must hold in reserve, four times, and has
twice raised the interest rate.
Meanwhile, China may allow another 20 foreign banks to
incorporate locally this year.
Banking industry sources said the China Banking Regulatory
Commission could approve the local incorporation of another 10
foreign banks as early as next month.
Another 10 banks may get the go-ahead in the second half of the
year, taking the total number of approved foreign banks to about
30.
(China Daily February 10, 2007)