By Bob Willis and Thomas Keene March 11 (Bloomberg) — China won’t allow its inflation rate to exceed 5 percent, said Stephen Roach, chairman of Morgan Stanley Asia Ltd., after a report today showed the country’s consumer prices rose at the fastest pace in 16 months. “They certainly don’t want inflation to go anything in excess of, I’d say, 4.5 to 5 percent, they will lean against that, they will lean against property bubbles,” Roach said today in a Bloomberg Radio interview. “They are very focused on economic and financial stability.” It’s hard to get a “clean read” on market-based inflation in China, he said, because most utility prices are regulated. “They are now moving back up to a positive inflation rate, in a 3 to 4 percent zone, after going through deflation in the crisis,” Roach said. Consumer prices rose 2.7 percent in February from a year earlier, the National Bureau of Statistics said today in Beijing. The increase was more than the 2.5 rate forecast by economists and adds to the case for the government to pare back stimulus measures after production jumped 20.7 percent in the first two months of 2010, the most in more than five years. Roach said he didn’t expect any “dramatic” policy announcements in coming weeks. In the period between Premier Wen Jiabao’s annual speech to the National People’s Congress this month and the launch of the 12th Five-Year Plan early next year, China is likely to focus on “traditional, counter-cyclical stabilization policies,” he said. Such policies would probably focus on bank reserve requirements, “maybe a small currency adjustment” ahead of the U.S. Treasury’s biannual foreign-exchange report next month, and “possibly an interest rate hike or two.” Excessive Lending Another element of China’s policies would be the ongoing “clamp-down on excessive lending” for property speculation, he said. China’s 12th Five-Year Plan, which is being drafted in government agencies and ministries, is likely to be a “watershed event,” said Roach. “It’s going to shift the model to more of a pro- consumption model” from communist China’s dependence on exports and investment, he said. “The export and investment dynamic has pretty much outlived its useful purpose, especially in this post-crisis period where consumers in the West are going to be struggling for a number of years.” Roach also said the International Monetary Fund, rather than the European Union, is best placed to enforce the economic adjustments that Greece must take to overcome its budget crisis. “Long-term financing for Greece needs to come from within, and the IMF is the best institution to force that type of adjustment,” he said. “It sends a horrible signal to the rest of Europe, that they condone bad behavior,” should the European Union lead a rescue for Greece. To contact the reporter on this story: Robert Willis in Washington at bwillis@bloomberg.net
The rest is here:
China Will Seek to Limit Inflation Rate to 5%, Morgan Stanley’s Roach Says
