The world’s second-largest economy grew 9.7 per cent in the first quarter.
China will continue tightening monetary policy for “some time,” central bank Governor Zhou Xiaochuan said a day after the world’s second-largest economy reported inflation accelerated to its fastest pace since 2008.
“We will remove the monetary factors related to inflation,” Zhou said at a briefing in the southern Chinese province of Hainan, where he’s attending the Boao Forum for Asia. “Our monetary policy will continue to move from moderately loose to prudent. This means proper tightening. The trend will continue for some time.”
China may increase the reserve requirement ratio for the nation’s banks this month in an effort to curb inflation, which accelerated to 5.4 per cent in March, according to Barclays Capital and Citic Securities Co. To rein in consumer prices, the People’s Bank of China has raised interest rates four times and increased reserve requirements six times since the third quarter of last year.
“Policy tightening should remain firm,” Chang Jian, a Hong Kong-based economist with Barclays Capital, said today. “Inflation risk remains significant. If they maintain the tightening stance and continue to withdraw liquidity and control credit as well as the pace of lending, that, at least gives you a higher chance of success.”
ECONOMIC GROWTH
China’s economy grew 9.7 per cent in the first quarter, faster than the 9.4 per cent median estimate in a Bloomberg survey, according to figures released by the National Bureau of Statistics yesterday.
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The central bank reported a day earlier that M2 money supply grew a faster-than-expected 16.6 per cent in March, and, at 679.4 billion yuan, new yuan loans for the month also exceeded economists’ estimates.
Recently, China increased the reserve requirement from March 25 and raised benchmark lending and deposit rates from April 6. The central bank has also imposed differentiated reserve requirements on the nation’s lenders. The reserve ratio is 20 per cent for China’s biggest banks and the one-year benchmark for borrowing costs is 6.31 per cent.
Zhou said China would continue to use differentiated regulations for financial institutions based on their systemic importance. He also said there wasn’t an absolute ceiling for the level of banks’ reserve requirements.
“I agree with the general view that there is no absolute line or limit for setting the reserve requirement ratio,” Zhou said. “It depends on many conditions. When these conditions change, the force and room for reserve requirement ratio adjustments will also change.”
Inflation in March was largely driven by food costs, which rose 12 per cent last month from a year earlier. Non-food inflation accelerated to 2.7 per cent.