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Economists say China needs to do more to fight inflation

(Xinhua)

10:50, August 21, 2011

BEIJING, Aug. 20 (Xinhua) -- China should adopt quantitative tools or conduct more rate hikes in its battle against inflation, economists said at a financial forum Saturday.

Xu Xiaonian, a professor at China Europe International Business School, said he expects more interest rate hikes in order to solve lingering inflation.

"China still faces tough inflation in the second half of this year, due to the excessive money supply in the past two years, which is still expanding at a rapid growth," said Xu while attending the fifth annual China Bankers Forum.

China's inflation rate rose to a three-year high in July, with the country's consumer price index rising 6.5 percent last month from a year earlier.

Only by putting an end to the current actual negative interest rate can inflation be solved, Xu said.

But Fan Gang, a former senior advisor to the People's Bank of China, or the central bank, expressed concerns that higher interest rates could attract more hot money inflow, which could threaten the development of emerging economies.

Fan said China should make full use of the central bank bill, which is more flexible for commercial banks as a way to regulate market liquidity.

According to Fan, with excessive money supply and continuing hot-money inflow that pushes up China's foreign exchange reserves, this is the only way to keep market liquidity under control.

Nearly 20 trillion yuan in new loans were extended over the past two years as part of the government's crisis-combating stimulus package. In July, China's new lending stood at 492.6 billion yuan.

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