China central bank may tighten cash supply as home prices fuel inflation fears
By Kevin Yao and Xiaoyi Shao
BEIJING (Reuters) - China signaled concern on Tuesday that ample credit could fuel inflation as a report showed house prices jumped the most in nearly three years, with double-digit gains in major cities.
A policy adviser to the People's Bank of China told Reuters the authority may tighten cash conditions in the financial system to address the inflation risks, while the central bank refrained from supplying cash to money markets for the second day running.
If it also avoids injecting cash at its next money market operation on Thursday, the effect will be a net weekly drain of 58 billion yuan - the second biggest since February.
"(Policy) will only be tightened slightly as inflation is rising. There are some concerns on bank lending," said Song Guoqing, an academic member of the central bank's monetary policy committee.
"Policy fine-tuning will rely mainly on open market operations and I cannot see any possibility of changing interest rates or bank reserve ratios."
Song's comments and the sharp rise in house prices highlight Beijing's policy quandary.
On the one hand, policymakers want to avoid a buildup of market and economic imbalances, such as a debt-fuelled property bubble.
On the other hand, they are reluctant to use more potent instruments to control the imbalances in case they also blunt a modest economic recovery ahead of a crucial policy meeting next month. Continued...