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China should tighten its monetary policy

Beijing, November 21, 2010

China should tighten monetary policy to staunch liquidity, and more measures should follow  next year, an advisor to the central bank said.

"We need to find ways to drain excessive liquidity, and  adopt a suitably tightened and prudent monetary policy," Xia  Bin, an academic advisor on China's central bank's monetary  policy committee said in an interview with a popular financial  news website.

Xia said the fact that the economy was flush with money was the fundamental reason for the recent spike in inflation. China's consumer inflation climbed to a 25-month high of 4.4  percent in October.

Xia does not have decision-making power as an advisor to  the central bank, but does provide input to the policy-making  process.   

On Friday, the People's Bank of China announced that it  would increase required reserves by 50 basis points, its fifth  such announcement this year, to remove excess cash from the  economy.

Xia, a former vice governor of the central bank, also said  that the country could afford to further raise required  reserves.

He said that China, in the face of the United States'  "irresponsible printing of dollars", needed to strengthen its  supervision of capital inflows and foreign investment in China.

China's foreign exchange regulator said on Monday that  foreigners would only be able to buy one home in China to curb  speculation.

"I personally think that limits on foreign investment  speculation on commercial buildings should also be  strengthened," Xia added. - Reuters




Tags: China | liquidity | Monetary policy |

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