Central bank vows to fight inflation

Central bank governor Zhou Xiaochuan pledged to contain inflation at the joint press conference with Bo to ensure that the purchasing power the Chinese do not decrease.

Zhou Xiaochuan, governor of the People's Bank of China or the central bank, answers questions at a joint press conference with Commerce Minister Bo Xilaion China's trade and monetary policy in the Great Hall of the People March 12, 2007. [Xinhua]

"For the central bank, the importance of this can not be overemphasized, " said Zhou.

The country's consumer price index might have grown 2.8 per cent in January, according to a poll of 21 economists by Bloomberg News. The projected growth is just slightly lower than the 3 per cent annual target of the central bank, fueling speculations that Zhou's administration will increase the interest rate.

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Zhou promised that the country's monetary policy would be more transparent and predicable, or more in consensus with the public and the industries. "This is the major trend."

However, he did not expect the future policies to accord with all schools of economists. "When a policy is out, some will say it is in line with their expectations, but others believe it is a surprise," said he.

In addition, Zhou said his bank does not hope to see the launch of a certain monetary policy helps speculative activities as it will give a bad signal.

The recent Chinese stock market plunge was not caused by changes in the economic fundamentals and is unlikely to lead to major trend changes, said the governor. China's stock market fell nearly 9 per cent February 27, the largest one-day fall in a decade, followed by a global stock market sell-off.

That showed the growing integration of Chinese and global equity market, said Zhou, vowing to further develop the country's capital markets.

When asked to offer some advice for investors, he suggested retail investors reading some books on finance, which will help them allocate their investments.

China's stock market witnessed a bullish run last year, growing more than 130 per cent. Millions of Chinese are pouring their money into the equity market for the limited number of quality shares, pushing up the prices.

The shares in the Shanghai Stock Exchange and Shenzhen Stock Exchange are trading at 33 times earnings on average, well above the 15 in developed western markets, fueling talks of bubbles.

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