No changes to tight monetary policy

Central bank governor Zhou Xiaochuan said the government will continue to enforce a tight monetary policy for 'some time' as consumer inflation is above a pre-set target.

'Generally speaking, the CPI (consumer price index) is relatively high and above the target [4 per cent level] set by the government work report, so we must use multiple tools to tackle the problem,' Zhou said in the southern province of Hainan, where he was attending the Boao Forum for Asia.

The remark by the head of the People's Bank of China came a day after the government reported inflation jumped to a 32-month high, raising the pressure for more to be done to limit prices and keep the economy on an even keel.

Consumer price inflation was at 5.4 per cent in the year to March, the fastest since July 2008, the National Bureau of Statistics said on Friday.

The release of other data also suggested that the world's second-largest economy was still growing and had been little hindered by the central bank's series of tightening measures since last year.

'We will remove the monetary factors that are related to inflation,' Zhou said at a breakfast briefing.

'Inflation is a critical reason behind the government's relatively tight monetary policy and it will continue for some time.'

He reiterated the government's stance that monetary policy will continue to move from being moderately loose over the past two years to being prudent - which will involve slower growth in loans and money supply.

The People's Bank of China has raised interest rates four times and increased reserve requirements for banks six times since the third quarter of last year.

Zhou said he disagreed with suggestions by some economists that the mainland was mired in continuous rate increases, though he agreed that the action is the main tool in curbing rising prices.

'We need future statistics, not the current ones, to convince us whether our monetary tightening has succeeded in easing the price pressures and accomplishing the target set by the government,' he said.

Zhou was referring to the aim of containing CPI below 4 per cent for the year announced by Premier Wen Jiabao's government work report delivered to the annual national legislature session in March.

He also said there was no ceiling for banks' reserve requirements- the proportion of deposits that must be kept on hand- leaving open the possibility of further increases.

At present, the country's big banks are required to set aside a record 20 per cent of their deposits as reserves.

'I agree with the general view that there is no absolute line or limit for where to set the reserve requirement ratio,' Zhou said.

'It depends on many conditions. When those conditions change, the force and room for adjustments to the reserve requirement ratio will also change.'

Zhou also repeated a recent suggestion by Wen that China would use the yuan's exchange rate to combat inflation and would make the currency more flexible over time.

Meanwhile, Dai Xianglong, chairman of the National Social Security Fund, said internationalising the currency would take about 15 years.

'By internationalisation, I mean the currency will be exchangeable, tradable, holdable and accountable. It will be at least 10 per cent of the world's total foreign reserves,' said Dai who was also at the forum.

He said Hong Kong was definitely the best place for the yuan's internationalisation.

Fast growth

Inflation report shows tightening measures failing to cool economy

The reserve requirements for the nation's biggest banks has been set at a record high of: 20%