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People's Daily Online>>China Business

China likely to keep prudent monetary policy, allow fine-tuning

(Xinhua)

22:23, November 29, 2011

BEIJING, Nov. 29 (Xinhua) -- While speculation builds up for possible changes to China's macroeconomic control policies, Chinese analysts have urged the government to stick to a prudent monetary policy while allowing for more fine-tuning.

The world's second-largest economy still faces a worsening external environment and the threat of inflation with the eurozone debt crisis evolving and prices rising faster than desired, said Wang Tongsan, head of the Institute of Quantitative and Technical Economics under the Chinese Academy of Social Sciences (CASS).

Quantitative easing policies, which are likely to be put into place in the United States and Europe to help solve the debt crises there, may create additional inflationary pressure for China, he said.

"Therefore, it's currently inappropriate to adjust the general direction of China's macroeconomic control policies," said Wang.

An interest rate drop is not a priority to consider in the short term, as China's interest rates remain below the inflation level, he said.

However, Wang noted that decreasing the reserve requirement ratio (RRR) may a practical choice in the future.

China's central bank has raised interest rates three times and hiked the RRR six times this year, driving inflation down to 5.5 percent in October from 6.5 percent in July. The figure is still well above the government's full-year target of 4 percent.

The nation's major banks are currently required to set aside a record high of 21.5 percent of their cash in reserve.


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