Monetary policy gets a scholarly touch

By Xin Zhiming (China Daily)
Updated: 2010-03-31 08:20
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New appointments will have little impact on interest rate hike timing

BEIJING - The appointment of three new academic members to the central bank's monetary policy committee on Monday reflects the increasing inclusiveness of monetary policymaking, but may not have any apparent bearing on the timing of an interest rate hike, analysts said.

The People's Bank of China (PBOC) said three Chinese economists - Xia Bin, Li Daokui and Zhou Qiren - will replace Fan Gang, the only academic member of the committee, which advises on major monetary issues.

"Adding two more academics to the monetary policy committee is a welcome change," said Wang Tao, head of China economic research at UBS Securities. "I hope this helps to increase healthy debate within the committee, and increase the independence of monetary policy."

"The appointment of three academic members this time - instead of one - indicates the increasing importance of academic voices in monetary policymaking and the three, with different backgrounds, are expected to complement each other to add to the inclusiveness of the panel," said Sun Lijian, an economist with Fudan University. It would make the country's monetary decision-making more rational, he said.

Going by their recent comments on inflation, with Li saying that China could precede the United States in raising the rates and Zhou urging a timely and firm exit from stimulus policies, it is speculated that their appointment may signal chances of an earlier rate hike.

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Zhou said in a February speech that it was high time that China exited from the stimulus measures. "Given the past experiences, the stimulus through expanding money supply and debt only has a short-term effect," he said in the speech.

One of the side effects of the stimulus is rising inflation. "The price of the stimulus policies is mainly the adverse effect of the large-scale release of money on the overall market price situation," he said. "We have seen it on the market."

Li said early this month once China's consumer price index (CPI), a major measure of inflation, rises 3 percent, the country is set to increase the rates. China's CPI rose by 2.7 percent year-on-year in February.

He also said on Monday that China may suffer from exported inflation from developed economies as their continued relaxed monetary policy would lead to surging raw material prices and large-scale capital flowing into the emerging economies, including China.

Meanwhile, China should keep itself alert against possible price rises due to weather changes, such as the recent severe drought in southwestern regions.

Xia Bin said on Monday that three factors should be taken into account when deciding on whether to raise the interest rates. It should be considered if real negative deposit interest rates occurred. But if inflationary expectations are not strong, the hike would be inappropriate. Moreover, China should not move ahead of the US since it would bring in speculative capital.

China's benchmark one-year deposit rate stands at 2.25 percent.

Dong Xian'an, chief macroeconomic analyst of Industrial Securities, said economic fundamentals should be the paramount determinant in interest rate related policymaking and the appointment of a new monetary policymaking panel would not have any substantial bearing on the timing of the possible hike.

The month-on-month CPI figure is a crucial factor and as it continues to rise, the hike may come in the second quarter of this year, he said.

Zhou Qiren:

Monetary policy gets a scholarly touch

Professor of economics and head of the China Center for Economic Research at Peking University. In the 1980s, Zhou was among the earliest economic research staff to study and plan the reform of the collective farms and then the overall reform of the Chinese economy. After obtaining his MA and PhD from the University of California, Los Angeles, he returned to China to participate in and lead various economics research and education programs.

Xia Bin:

Monetary policy gets a scholarly touch

Director of the financial research institute of the Development Research Center of the State Council, the Chinese cabinet. Since graduation from the well-known school of post-graduate studies of the People's Bank of China in 1984, Xia has been appointed to various key government and think-tank positions related with the financial and securities markets.

Li Daokui:

Monetary policy gets a scholarly touch

Born in 1965 and the youngest of the newly appointed three scholars. Director of the center for China in the world economy at the Tsinghua University School of Economics and Management. Before taking his current position at Tsinghua University, he obtained his PhD from Harvard University in 1992 and held various research and teaching positions in the US and Hong Kong.