Policy adjustments

Zhou: Monetary policies have multiple targets, including maintaining stable price levels, reasonable economic growth, high employment and balance for international payment.

However, it takes several months or up to one year or more to see the effects after a monetary policy is released.

Therefore, we have also introduced some intermediate variables, such as narrow money, broad money and money in circulation.

Recently, besides the aggregate volume of loans, we have also been observing the total financing volume because many intermediate variables can reflect the demand of monetary policies from the overall economy.

There are several tools for implementing monetary policies.

We can open market operations, deposit reserve rate, interest rate, exchange rate and some other ways.

Monetary policies should be coordinated with fiscal policies and other policies, but it's hard to say what factors will lead to interest rate adjustment and how much the adjustment will be.

After the Chinese economy successfully recovered from the global financial crisis, inflation has been on the rise. Under these circumstances, the interest rate is certainly an important tool to use. However, any tool of financial policies is likely to have an adverse impact, such as increased capital inflows.

But since China has yet to fully open its capital account, the government still has some ways to manage the capital flows. Some countries have no control over the capital account, but when deciding monetary policies, the government still needs to weigh its gains and losses. At present, the interest rate policy is still a major tool.

As for the exchange rate, China has a large economy with a massive population, and therefore any adjustment in the exchange rate will impose some influence on domestic prices. Among the policy tools to cope with inflation, the exchange rate should not be a focus, because there are several factors to consider. We will continue to advance the reform of the exchange rate step by step and enhance the flexibility of the exchange rate.