Higher interest rates won’t check inflation

February 29th, 2008 - 12:15 am ICT by admin  

Beijing, Feb 28 (Xinhua) Interest rate hikes are not the way to address China’s spiralling inflation because higher rates could have a negative impact on the stock market, a top economic think tank of the country has said. The negative impact of the severe winter would continue to push up consumer prices in the first quarter, but the impact would pass, said the report by the State Information Centre (SIC) published Thursday in the China Securities Journal.

The research centre revised upward the consumer price index (CPI) to 6.9 percent from its earlier projection of 6.6 percent in the first quarter.

The SIC recommended the government raise the reserve ratio requirement for commercial banks to rein in lending.

Chinese share prices have been volatile and mostly lower lately, with the key Shanghai index falling almost one-third from its peak of more than 6,000 in mid-October to 4,192.53 Monday, the lowest close in seven months.

China should continue with its tight monetary policy to prevent fixed investment from surging, said the SIC.

It also said the government should maintain prudent fiscal policy and channel more funds toward rebuilding snow-stricken provinces.

The SIC forecast that first-quarter gross domestic product growth could drop to 10.5 percent from 11.2 percent in the fourth quarter.

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