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China central bank warns of strong inflationary pressure PDF Print E-mail
Sunday, 24 February 2008

Agence France-Presse . Beijing

China's central bank warned on Friday of still strong domestic inflationary pressure and indicated it was prepared to hike interest rates again to tame rising prices.

'There remains rather big upside pressure on inflation,' the central bank said in its latest quarterly report, a few days after data was released showing domestic consumer prices had risen by 7.1 per cent in January, an 11-year high.

'The impact of rising international prices, domestic supply tensions and corrections in the prices of key resources have had a combined impact on inflation.'

The central bank also said the ice and snow storms that plagued southern and central China in January and February, crippling power and transport networks as well as ruining winter crops, had worsened the situation.

'Generally, inflation will stay at a rather high level for some time into the future,' the bank said. It also indicated more interest rate hikes were on the cards. 'We will use the interest rate leverage rationally and steadily push forward the market reform of interest rates,' the bank said.

'We will properly use the interest rate tool, based on changes in the domestic and international macro economy and financial situations, to play its role in curbing demand and stabilising anticipation on inflation.'

China hiked interest rates six times last year in an effort to tame inflation and cool the economy, which nevertheless grew at 11.4 per cent in 2007. On China's trade surplus, a cause of huge friction with its major trading partners, the central bank said to expect another big figure this year but that a slowdown in the global economy would curb Chinese exports. 'The trade surplus will remain at a rather high level, but the growth is expected to slow down gradually,' the bank said.

'Affected by the subprime crisis in the United States, external demand is weakening, pressured by a slowdown in the global economy.' The bank said the appreciation of the Chinese currency, the yuan, and recent government moves to cut export tax rebates would also lead to a slowing in exports.

China's trade surplus hit a record high of 262.2 billion dollars last year, up 47.7 per cent from 2006. On the yuan, which the United States and other critics argue remains severely undervalued, the bank offered no indication of a major change from current policies.

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