The head of the People’s Bank of China, Zhou Xiaochuan, said the government may use tools beyond raising the required reserve requirement, or hiking interest rates to deal with the problem. Notably, Xiaochuan spoke of adjusting the yuan’s peg to deal with the problem, according to Reuters.
Expectations were high before the inflation data release that China would continue its tightening cycle, as wages and disposable income increase. House prices have been falling, which may restrict the severity of the tightening measures. Societe Generale analyst Wei Yao expects further required reserve ratio hikes to restrict bank lending, however.
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