China’s central bank chief says policy to remain stable

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The head of China’s central bank said the world’s second-largest economy would continue to tackle inflation and resist major policy changes that could provoke a so-called hard landing.

‘We will not introduce macroeconomic policies that will trigger a ‘hard landing,’’ said People’s Bank of China Governor Zhou Xiaochuan in an interview published Monday in the China Business News. ‘Instead, we’ll let the policies work for a period of time to make sure the economy ‘soft lands,’ and at the same time, maintain stable and sustainable growth.’

Zhou added that policies would remain flexible given the uncertainty of the global economy, suggesting China will use currency appreciation as a tool to dull inflation.

The central bank set the yuan Monday at its highest level against the dollar since July 2005, at 6.3735.

Zhou’s remarks decrease the chances that China will seek a new round of fiscal tightening in the coming months. But it also reinforces the belief that Beijing will steer clear of loosened monetary conditions anytime soon.

The latter may have spurred the sell-off of shares in China on Monday. The Shanghai Composite Index, which tracks the country’s larger stock exchanges, fell 1.6% to 2,393.18 – its lowest point in more than 14 months.

After hitting a 37-month high in July, China’s inflation rate eased slightly in August. Some economists believe that inflation has peaked in China, though the chances of it staying persistently high remain strong.

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-- David Pierson
Twitter.com/dhpierson