China has room to increase interest rates and banks' reserve requirements to cool the world's fastest-growing major economy, central bank Governor Zhou Xiaochuan said yesterday.
"There is room for all monetary policy tools, including rates and reserve ratios," Zhou told reporters at the annual meeting of the nation's legislature in Beijing on Sunday. He made the same comment about rates 10 days ago.
Six increases in deposit and lending rates last year and record reserve requirements for banks have failed to prevent inflation from accelerating to an 11-year high. Raising rates may attract overseas money into an economy already flooded with cash.
"Inflation remains the central bank's biggest concern this year," said Wang Yuanhong, an economist with the State Information Center.
The key one-year lending rate is at a nine-year high of 7.47 percent. The deposit rate is 4.14 percent, less than half the 8.7 percent pace of inflation in February. Banks are required to set aside 15 percent of deposits as reserves.
While inflation accelerated last month on food costs and supply disruptions caused by blizzards, the trade surplus narrowed, the value of new loans dropped from the previous month and growth in money supply slowed.
It's "too early" to say monetary policy has succeeded in cooling credit and money-supply growth, Zhou said.
Some economic data "improved a bit" in February, "but there were special factors such as the Spring Festival and the snow disaster," he said, without elaborating.
Loan growth may top a government target for the first quarter of this year, Wu Xiaoling, a former vice governor of the People's Bank of China, said yesterday.
"We still have one month to watch lending growth for the first quarter," Wu added, without specifying the target.
Lending limits won't be relaxed because of the rebuilding required after the blizzards that swept across parts of the country in January and February, Wu said.
The central bank wants no more than 35 percent of this year's new loans to be made in the first quarter, the Shanghai Securities News reported on December 21 last year. This year's lending growth will be capped at 15 percent, the newspaper said.
Premier Wen Jiabao said on March 5 that the government needs a "tight" monetary policy and to do more this year to curb lending growth and price gains.
Small rural lenders may face "liquidity difficulties and even payment risk" this year because of government measures to slow loan growth, China Banking Regulatory Commission vice chairman Jiang Dingzhi said on February 26.