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HONG KONG : Hong Kong's financial chief Monday welcomed China's monetary tightening measures, saying they would prevent a bubble in the stock market but warned a higher yuan could put pressure on inflation here.
The Chinese central bank last Friday announced it was simultaneously raising interest rates and the bank reserve ratio along with a widening of the currency's daily trading band against the US dollar.
Financial Secretary Henry Tang called the moves "timely" and "appropriate" saying gradual measures to control the overheated economy in China would be beneficial to the Hong Kong economy.
"If (China) can gradually and orderly control the economic growth so that it would not develop too quickly and cause a bubble, I believe the three moves will have a positive impact (on the Hong Kong economy)," he said.
However, Tang warned that the widening of the yuan's trading band will lead to a higher yuan, resulting in greater inflationary pressures in the territory due to the closer economic integration between both sides.
"This will put pressure on inflation here in the long term, so we will pay close attention to that," he told reporters.
Tang also cautioned that increased measures from China would lead to volatility in China, Hong Kong and global stock markets.
The main composite index in China has more than tripled since the start of 2006 and jumped more than 50 percent so far this year, prompting repeated warnings from officials and analysts that a dangerous bubble has formed.
To rein in the fast-growing economy, China's central bank said Friday it would raise benchmark one-year lending rates by 0.18 percentage points to 6.57 percent and the deposit rate by 0.27 percentage points to 3.06 percent.
The bigger increase in deposit rates signalled the intent of regulators to cool off the nation's sizzling stock markets, to ensure "reasonable growth" in investments and keep prices stable, it said.
The bank reserve ratio has also been increased by 0.5 percentage points to 11.5 percent in a bid to reduce the funds banks have available for lending.
At the same time it widened the yuan's daily trading band against the US dollar to 0.5 percent from 0.3 percent.
- AFP/ms
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