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Although the central bank has scheduled two reserves ratio increases this year, the possibilities of further rises could not be ruled out if money supply keeps growing, said an expert on Sunday.

 

The People's Bank of China raised the benchmark one-year loan interest rate by 0.27 percentage points in late April and the reserves ratio by 0.5 percentage points on July 5.

 

Another rise of 0.5 percentage points in the reserves ratio is due Tuesday. The central bank expects the two hikes - one percentage point in total - will take 300 billion yuan out of circulation.

 

Likening the Chinese economy to "a vigorous man", Xia said "these gentle adjustments have barely left a scratch on his body".

 

"Reserves ratio hikes are not a potent remedy in a country plagued by money oversupply," he said, stressing that the central bank had examined capital market liquidity closely in its second-quarter report on the implementation of monetary policy.

 

The report issued Wednesday said that China's unbalanced international payments have injected excess liquidity into capital markets, aggravating the money oversupply.

 

It also said that China is under inflationary pressure and that the central bank must prevent the "slightly rapid" economic growth from becoming "overheated".

 

As there is no easy way of resolving the unbalanced international payments issue, Xia told the first Annual Meeting on China's Financial Market in Beijing that China must reform its foreign exchange rate system, prevent foreign currency from entering the country via illegitimate channels and expand domestic demand.

 

The "overheated" concern was not shared by Wang Yiming, executive vice president of the Academy of Macroeconomic Research with the National Development and Reform Commission.

 

He claimed that the macro-economic control policies adopted by the central government had begun to take effect. "Growth rates haven't changed abruptly in the past three years and inflation remains moderate", he said. "The key is to maintain solid and steady growth".

 

(Xinhua News Agency August 14, 2006)