China central bank to keep tight policy despite hardship

China's biggest economic risk this year is inflation and the central bank will stick to a tight monetary policy despite the impact of last month's snowstorms and the US credit crisis, said a central banker quoted yesterday by news reports.

"This year we will closely monitor the increase of the money supply and carry out a tight monetary policy," said Yi Gang (易鋼), a vice governor of the People's Bank of China, quoted by the business magazine Caijing and other outlets.

`NO CHANGE'

Although the impact of the US subprime crisis was spilling over and China was suffering from the worst winter weather in 50 years, the government would not change its tight monetary policy, Yi said.

The bank had evaluated the influences of the two factors on investment, consumption and trade and would keep the policy unchanged, he said.

POLICY CHANGE

The bank shifted its monetary policy from "prudent" to "tight" in December in an effort to prevent the fast-growing economy from overheating and rein in inflation. China raised interest rates six times last year and increased the amount of reserves banks are required to hold on 10 occasions.

China's economy expanded 11.4 percent last year and consumer inflation last month hit an 11-year high of 7.1 percent.

The central bank told commercial lenders to expand credit to farmers who were hurt by the storms. That prompted speculation it might ease controls imposed in an effort to prevent the fast-growing economy from overheating.