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China c.banker vows to control price rise expectations

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littlekracker


China c.banker vows to control price rise expectations

BEIJING, April 25 (Reuters) - China will adopt a package of policy tools to contain widespread inflationary expectations and nip potential risks in the bud, according to a central bank statement published on Sunday.

Repeating its long-standing policy tune, the statement cited central bank chief Zhou Xiaochuan as saying China would maintain its proactive fiscal policy and appropriately loose monetary policy as it is still facing complex challenges.

"We will make comprehensive use of fiscal and monetary policy tools, pay close attention to price trends and manage well inflationary expectations to effectively prevent and address various potential systemic risks," Zhou told the International Monetary Fund on Saturday in Washington, according to the statement on the central bank's website (www.pbc.gov.cn).

China has raised reserve requirement ratios twice this year and greatly reduced loan growth from the previous year. But it has kept interest rates unchanged and the yuan currency's exchange rate tightly controlled.

Many economists, including some central bank advisers, have been warning that the People's Bank of China should be prepared to raise interest rates if inflation-adjusted bank deposit rates languished for long in negative territory.

Chinese consumer prices rose 2.4 percent in the year to March, outstripping the 2.25 percent rate on one-year certificates of deposit.

In Zhou's remarks to the IMF, he said that when considering a monetary policy exit, a central bank should not only weigh inflationary pressures, but also the spillover effects and potential systemic risks resulting from excessive liquidity.

The report made no comment on the yuan.

Turning to the global economy, Zhou said that the greatest risk comes from the developed world.

"The unsustainable fiscal condition in developed economies is the major risk threatening global financial stability," Zhou said, according to the statement.

Zhou also called for a change in the structure of the IMF, arguing under-representation of emerging markets and developing economies in the organisation severely undermined the fund's effectiveness. (Reporting by Eadie Chen and Ben Blanchard; Editing by Jerry Norton) (eadie.chen@reuters.com; +8610 6627 1268; Reuters Messaging: eadie.chen.reuters.com@reuters.net))

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