×

Quake Policy Must Curb Inflation: China Central Bank

Monetary policy should aim to help China recover from this month's devastating earthquake but it must also continue to fight inflation, central bank chief Zhou Xiaochuan said.

China, Chinese Flag
CNBC.com
China, Chinese Flag

Visiting the city of Chongqing, near the disaster zone, Zhou said on Monday that the central bank would focus at present on aiding reconstruction. But he also called for a "forward-looking" policy that took into account long-term economic development.

"We must meet enterprises' demands for relief and reconstruction work, and also implement effectively economic tightening steps to prevent excessive growth of inflation and investment," Zhou said in comments posted on the central bank's Web site (www.pbc.gov.cn/) on Tuesday.

At the weekend, central bank adviser Fan Gang also indicated that the central bank was anxious to prevent reconstruction work after the quake from boosting consumer price inflation, which is running near 11-year highs.

China should not loosen macroeconomic policy in response to the quake because economic demand in the disaster area would end up increasing rather than decreasing, Fan argued.

Since the May 12 quake, Chinese monetary authorities have urged commercial banks to step up lending to disaster-hit companies and have exempted institutions in quake-stricken districts from the latest increase in bank reserve requirements -- an increase that was designed to help cool the economy.

Fan Jianping, an economist at the State Information Centre, a think-tank under the economic planning agency, predicted on Monday that inflation would reach 7.0 percent in 2008, up from 4.8 percent last year. It was one of the most bearish inflation forecasts yet by a government-connected economist.