China sticking to ‘tight’ monetary policy

“This year we will closely monitor the increase of the money supply and carry out a tight monetary policy,” said Yi Gang, a vice governor of the People’s Bank of China, quoted by the business magazine Caijing and other outlets.

Yi said that was despite the fact that China expected its economy to feel the impact of the US subprime mortgage crisis and snowstorms in January that wrecked crops and pushed up inflation.

The bank shifted its monetary policy from ‘prudent’ to ‘tight’ in December in an effort to prevent the fast-growing economy from overheating and rein in inflation. China raised interest rates six times last year and increased the amount of reserves banks are required to hold on 10 occasions.

China’s economy expanded 11.4 per cent last year and consumer inflation in January hit an 11-year high of 7.1 per cent.

The central bank told commercial lenders to expand credit to farmers who were hurt by the storms. That prompted speculation it might ease controls imposed in an effort to prevent the fast-growing economy from overheating. (AP)