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Economic chiefs put rate rise on hold

Mark O'Neill

Despite inflationary pressure, calls for change are resisted

Inflationary pressures are growing but there will not be an imminent rise in interest rates or a revaluation of the yuan, senior mainland officials said yesterday.

They were speaking at the spring meeting of the Institute of International Finance, held yesterday in Shanghai for the first time and attended by the heads of some of the world's biggest banks.

'Inflationary pressures have been gradually growing,' Deputy Finance Minister Li Yong told the audience.

'The government needs to conduct a pro-active fiscal policy and consistent and prudent monetary policy to prevent rapid credit growth.'

On Thursday, the National Bureau of Statistics said gross domestic product had soared an annual 9.7 per cent in the first quarter with consumer prices up 2.8 per cent, or 2.3 percentage points year on year.

Mr Li said excessive and unreasonable investments were happening in some sectors of the economy, singling out steel and aluminium.

People's Bank of China governor Zhou Xiaochuan said it had not ruled out raising interest rates in the second quarter but needed to review cooling measures already in place.

'The central bank has been aggressively mopping up liquidity through bill issues, has raised bank reserve requirements and boosted rates on the interbank market. The effectiveness of these measures still needs to be assessed.

'The most important thing is a stable monetary policy. It is too early to say if we need to increase interest rates,' he said.

Earlier this week, US Vice-President Dick Cheney asked Beijing to float the yuan, but officials yesterday reiterated their refusal.

Mr Li said the ultimate goal was full convertibility but a relatively stable yuan was conducive to regional and global stability and domestic development.

Vice-Premier Huang Ju, who is in overall charge of finance, said Beijing would improve exchange rate mechanisms. 'We will lift restrictions on cross-border capital transactions in a selective and step-by-step manner, leading over a period of time' to yuan convertibility.

The mainland would also strive for a better international balance of payments, he said.

The government would maintain the yuan at a 'reasonable and balanced level', Mr Huang added.

Tim Condon, head of Asian financial markets' research at financial giant ING, on Thursday forecast GDP would grow 9 per cent for the full year, with inflation of 4 per cent.

'The government is pre-occupied with overheating. The government measures will remain. By the end of the year, we will still be discussing overheating,' he said.

He said the yuan was undervalued by 17 per cent.

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