China central bank governor calls for vigilance on deflation

[BOAO, China] China's central bank governor Zhou Xiaochuan warned on Sunday that the country needs to be vigilant for signs of deflation and said policymakers were watching slowing global economic growth and declining commodity prices. "Inflation in China is also declining. We need to have vigilance if this can go further to reach some sort of deflation or not," Zhou said at a high-level forum in Boao, on the southern Chinese island of Hainan.

Last week, Mr Zhou said China could undermine structural reforms if it adopts an excessively loose monetary policy, while pledging to relax capital controls to help make the yuan currency fully convertible.

The People's Bank of China (PBOC) has cut interest rates twice since November and taken other steps to support the cooling economy. Economists believe it will be forced to take more aggressive easing measures in the coming months if prices and the economy continue to weaken.

At an annual parliamentary meeting that began earlier this month, China announced an economic growth target of around 7 per cent for this year, down from 7.4 per cent in 2014, already the slowest in 24 years.

In late February, the central bank's newspaper warned that China is dangerously close to slipping into deflation, highlighting increasing nervousness in policymaking circles.

China's annual consumer inflation quickened to 1.4 per cent in February from a 5-year low of 0.8 per cent the previous month.

Qian Yingyi, a member of the central bank's monetary policy committee, told Reuters earlier this month, however, that the bounce could be a one-off blip as a result of the Lunar New Year holiday.

Producer prices declined 4.8 per cent in February, the sharpest drop since Oct 2009 and extending a long-running factory deflation cycle to nearly three years.

REUTERS