China should gradually make real bank deposit rates positive and continue to use open market operations and bank reserve requirements to slow money supply, an academic adviser to the People's Bank of China said in comments published on Wednesday.
Xia Bin, a member of the central bank's monetary policy committee, told the People's Daily overseas edition that monetary policy should stay relatively tight in the foreseeable future to help tackle cyclical problems, adding he saw little risk of a hard landing in the world's second-largest economy.
Xia indicated deposit rates should be lifted since banks have begun charging higher lending rates on their clients.
We should gradually turn the real benchmark bank deposit rate from negative to positive against the backdrop that various market rates have been climbing sharply, he said.
The latest rate rise by the central bank on July 6 lifted the benchmark one-year lending rate to 6.56 percent, and its benchmark one-year deposit rate to 3.5 percent.
With annual inflation quickening to a three-year high of 6.4 percent in June, the real deposit rates fall deeply in negative territory, prompting more Chinese to channel their savings into property and high-yielding investments.
China tightly controls bank interest rates by setting a ceiling on deposit rates and a floor on lending rates, giving banks a guaranteed margin of about 300 basis points.
The central bank has raised interest rates five times and lifted banks' reserve requirement ratio nine times since October to try to put a lid on stubbornly high inflation.
On the economy, Xia said it was natural for the growth rate to slow in response to policy tightening, but there was little risk of a hard landing since credit curbs have not affected social stability or undermined the financial system.
We should be optimistic about China's economy over the longer term, but we cannot be blindly optimistic. We indeed face many difficulties in the medium-term, he said.
He said China must find ways to resolve the deep-seated structural problems in the economy to keep it on an even keel.
(Reporting by Kevin Yao; Editing by Ken Wills)