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Wen confident on inflation after rate rise

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China’s government will be able to keep inflation in check, Premier Wen Jiabao said on Sunday, a day after the central bank raised interest rates, and pledged to speed up efforts to rein in house price surges.

Steps taken in the past month, including outright price controls to curb speculation and monetary tightening, had started to produce results, Wen said.

The People’s Bank of China raised interest rates on Christmas Day for the second time in just over two months as Beijing strengthened its battle against stubbornly high inflation.

Analysts said the latest rise showed that measures such as increasing banks’ required reserve requirements to rein in liquidity were not enough on their own, and that the Chinese authorities were determined to keep inflation under control.

“We have raised reserve requirement ratio for six consecutive times and increased interest rates twice to absorb excess liquidity in the market to keep it at a reasonable level to support economic development,” Wen said in a state radio broadcast a day after the rate rise.

“I believe we can keep prices at a reasonable level through our efforts. As a major leader of the government, I have the responsibility and I have the confidence, too,” he said in remarks published on www.cnr.cn.

The rate rise came after Beijing said earlier in December it was switching to a “prudent” monetary policy, from its earlier “moderately loose” stance.
The central bank said on Friday it would deploy a range of measures to head off inflationary pressures and asset bubbles.

China also intensified its property tightening measures in April and September in an attempt to brake soaring property prices.

“Until now, the measures are not implemented well enough, and we will reinforce our efforts in two ways,” Wen said.

The government plans to build 10 million units of affordable housing in 2011, up from this year’s target of 5,8 million.

China will also increase efforts to curb speculation in the real estate market, mainly through monetary policies and stricter use of land, Wen said, without giving details.

Property transactions as well as land costs, a major contributor to high housing prices, have shown signs of a rebound in recent weeks, triggering concerns of more tightening.

Despite all the challenges, Wen said: “I believe property prices will return to reasonable levels through our efforts. I have the confidence.”

Chinese stock markets have shed nearly 10% since mid-November on concerns the government would ratchet up its monetary policy tightening in the face of rising inflation.

However, analysts suggested China’s share market could push higher today on optimism about the overall outlook for shares in 2011.

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