Exchange rate policy not major tool to tame inflation

The exchange rate policy is not a major tool for China to tame inflation, central bank governor Zhou Xiaochuan said Friday.

Zhou made the comment in response to a question on whether China would make a one-off appreciation of the yuan to ease rising domestic price pressures.

The interest rate policy, however, remains an important tool to curb inflation although higher interest rates might lead to capital inflows, Zhou told a press conference on the sidelines of the ongoing China’s parliamentary session.

China will continue to push forward the yuan’s exchange rate reform in a self-initiated, controllable and gradual manner and enhance the flexibility of the exchange rate, Zhou said.

The consumer price index (CPI), a major gauge of inflation in China, rose 4.9 percent in February from the same month last year, the same figure as in January, the National Bureau of Statistics (NBS) announced Friday.

“We will use price and quantitative tools such as interest rates, banks’ reserve requirements and open market operations to maintain appropriate liquidity in the banking system,” said a statement to the media before the press conference.

“China will implement dynamic differentiated reserve requirement ratios to guide stable and moderate growth in money and credit,” it said.

– Xinhua news

– Image from google.

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