M
Musashi Miyamoto
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China on warpath against inflation
China's central bank chief has pledged to keep prices stable in 2011, raising the prospect of further interest rate rises to rein in inflation.
Fears for social unrest over high food prices spurred China's authorities to raise interest rates for the first time in almost three years. Photo: EPA
By Emma Rowley 5:27PM GMT 31 Dec 2010
Zhou Xiaochuan, the governor of the People's Bank of China, used his New Year message to reaffirm the shift to a "prudent" monetary policy from the "moderately loose" stance taken as the country tried to drive growth.
His tone was markedly changed from a year ago, when he saw "defeating the international financial crisis" as the crucial task.
Policy makers are now battling the downsides of the credit boom they stoked through stimulus spending and low interest rates to keep expansion at a rapid pace.
The central bank on Friday set the yuan at its strongest exchange rate against the dollar since promising to loosen its grip on the currency in June, putting the middle of the yuan's allowed trading band at a little over 6.62 to the dollar.
Allowing the yuan to appreciate will reduce import costs and eases inflationary pressures, it is hoped.
Fears for social unrest over high food prices spurred the authorities to raise interest rates for the first time in almost three years in October, to curb inflation.
A second rate rise took place over the Christmas weekend, taking rates up 25 basis points to 5.81pc.
Shortly after, China's prime minister Wen Jiabao took to the airwaves to reassure listeners that Beijing can tackle spiralling prices.
The Government has also been trying to curb bank lending, by ordering them to keep more money in reserve.
Major state-owned companies were this week ordered to funnel more profits to the state, which politicians hope will reduce their ability to invest and so help stop the economy overheating further.
