China central bank governor calls for vigilance on deflation

Sun Mar 29, 2015 1:58am EDT
 
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By Adam Jourdan

BOAO, China (Reuters) - 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 closely watching slowing global economic growth and declining commodity prices.

Zhou's comments are likely to add to concerns that China is in danger of slipping into deflation and underline increasing nervousness among policymakers as the economy continues to lose momentum despite a raft of stimulus measures.

"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.

Zhou added that the speed with which inflation was slowing was a "little too quick", though this was part of China's ongoing market readjustment and reforms.

Beijing is determined to keep the world's second-largest economy from taking the same path of recession and deflation that has blighted its neighbor Japan for the past 20 years.

The central bank's newspaper warned last month that China is dangerously close to slipping into deflation.

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

  Continued...

 
China's central bank governor Zhou Xiaochuan delivers a speech about "Sound Monetary Policy in the New Normal" at China Development Forum, in Beijing March 22, 2015.  REUTERS/Jason Lee - RTR4UCGO