China needs to continue monetary tightening

SHANGHAI: China needs to continue "appropriate" monetary tightening policy, including using open market operations and bank required reserve ratio (RRR) increases, a central bank advisor said in an article published on Monday.

The government needs to continue let the yuan appreciate against the dollar and raise interest rates to help adjust the country's economic structure, Xia Bin, who sits on the central bank's monetary policy committee, said in the article published in the official China Securities Journal.

"The most important task for monetary policy in the coming few years is how to digest a huge monetary stock of 76 trillion yuan ($11.8 trillion), which is related to whether China can maintain the basic stability of prices," Xia said.

Monetary stock, also called money stock, is the total amount of money available in an economy at a particular point in time, mainly cash, deposits and securities.

"An appropriate tight...or prudent monetary policy, will not only help solve problems derived from economic cycles but also benefit the adjustment of the economic structure," Xia said.

The People's Bank of China (PBOC) has raised official interest rate five times and RRR nine times since last October as the country's inflation has risen steadily to a three-year high of 6.4 percent in June, partly propelled by huge money supply in the financial system.

China is also in the early stages of an economic rebalancing act that is aimed at making the economy less reliant on exports and investment, with the PBOC letting the yuan hit a slew of record highs since the start of this year.

COPYRIGHT REUTERS, 2011