(China Daily)
Updated: 2007-10-27 14:34

Tightening monetary policy too much will hurt the economy, says a commentary in the Nanfang Metropolis News. The following is an excerpt:

Official economic performance figures, released on Thursday, confirmed the strong growth momentum carried on through the first nine months of the year.

The 11.5 percent of GDP growth was 0.7 percentage points higher than the same period last year while consumption, exports and investment all made considerable contributions to economic growth.

Facing economic prosperity, the market witnessed sweeping fear about the possible tightening of monetary policy, although a senior official from the central bank said explicitly that it would need more time to consider further interest rate hikes.

Under current conditions, it might harm China's economic soundness if authorities tighten monetary policy too much. When the whole world sees inflation, more overseas capital would come after the renminbi assets if our interest rates are hoisted too frequently or too dramatically.

A huge number of international investors are now eying China's stock market, futures market and other financial markets. A tightened monetary policy would bring down the price of capital assets, leaving room of speculation for these international investors rather than our own residents.

Admittedly, it helps cooling the economy by tightening the money supply. But it also causes great difficulty for medium and small businesses to get proper financing. The middle-income earners, who are the primary group of mortgage borrowers, would also suffer from the rate hikes.

Admittedly, the authorities tried to ensure the smooth economic growth with the monetary policy moves. But if they did it too much, it would only hurt the businesses and damage the base for the economic growth, which is obviously against their policy goal.