Central Bank Governor Speaks of Inflation and Interest Rate

By staff reporter Wang Song

The ongoing NPC session held a news conference on March 11 on the nation's monetary policy and financial issues. The briefing was led by Governor of the People's Bank of China Zhou Xiaochuan and three Vice Governors -- Hu Xiaolian, Liu Shiyu and Yi Gang.                 

According to Zhou, China measures its consumer price index (CPI) on year-on-year basis, so the result is influenced by figures of the previous year, which were in a state of flux during the global financial crisis. Holiday spending also plays a role in swaying CPI and prices. These factors have to be considered when forecasting future CPI changes. In the government work report delivered by Premier Wen Jiabao at the opening of the 2011 session of the National People's Congress, he said China aims to keep the CPI rise at around four percent this year.

The consumer price index, 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.

The interest rate policy remains an important tool to curb inflation although higher interest rates might lead to capital inflows.

"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.