A senior central bank official said yesterday that the current interest rate level is "appropriate," and the bank will make adjustments only when the situation requires.
"I think the interest rate (level) at this time is appropriate," Yi Gang, assistant governor of the People's Bank of China, China's central bank, said when answering questions from netizens in a live Internet conference.
"It is basically in line with macroeconomic and financial indicators," he added.
In recent days, some economists have predicted that the central bank may soon raise the rate as China's consumer price index (CPI) growth picked up in December, when it rose by 2.8 percent year on year. Its annual growth was 1.5 percent in 2006.
Yi added that even though price levels are rational at the moment, the central bank will continue to closely monitor the CPI and other economic indicators to see if the situation changes to a degree that makes it necessary to raise the rate.
He said the rising CPI in the past three months was mostly a result of rising grain prices, but the trend might not continue.
"We do not worry the grain prices will continue to rise and their impact on the CPI may be only in the short term."
The National Bureau of Statistics is due to release the CPI figure for January today. The central bank aims to keep the CPI under 3 percent this year, which is attainable, according to Yi.
Zhao Xijun, an economist with Renmin University of China, also told China Daily that the grain price rises were a pickup from previous months' lower levels and will not be sustained.
"If the rise is only temporary, it would be unnecessary for the central bank to take any action," he said.
The assistant governor said that while the CPI is the most important index, the central bank will also monitor other indicators, such as the producer price index, the retail price index and export and import price indices, as well as investment.
"We will make adjustments on the basis of changes in those factors."
Yi expressed the central bank's firm determination to curb excessive inflation. "Once there emerges any sign of that, we will take timely measures."
The People's Daily on Monday published an article by Wu Xiaoling, vice-governor of the central bank, who argued that raising interest rates would not resolve excess liquidity.
The article contradicts the central bank's latest quarterly monetary policy report's emphasis of the role of interest rates and has been widely interpreted as a shift in the central bank's stance on raising the rate. The central bank yesterday said on its website that the article was based on Wu's speech in late November and does not represent its stance on its current interest rate policy.
Yi said that Wu's article was misinterpreted.
"Her major point was that the paramount task (for the central bank) is to mop up excessive liquidity," Yi said.
"The interest rate remains a primary tool of monetary policy," he added.
Lehman Brothers said in its report released on Friday that rising production costs would lift China's CPI to about 2.3 percent in 2007 and it will not "get out of hand."
(China Daily February 14, 2007)