2010-11-11 13:45

SEOUL - China's central bank is likely to tighten monetary policy further to fight a flood of liquidity, Jiang Jianqing, the chairman of Industrial and Commercial Bank of China (ICBC), the world's largest lender, told Reuters.

Jiang, the only banker on the monetary policy committee of the People's Bank of China (PBOC), was speaking after the central bank increased reserve requirements by half a percentage point on Wednesday to put a brake on lending. [PBOC to raise reserve ratio]

"It's obviously a move to address liquidity problems and to fend off inflationary pressure," Jiang said in an interview on the sidelines of a forum of global business leaders organised in conjunction with this week's Group of 20 summit.

Asked whether monetary policy would be tightened further in 2011, Jiang said: "Looking at things as they are now, there is a problem of abundant liquidity, or excess liquidity.

"If this trend continues, I'm afraid the central bank will have to keep taking corresponding measures."

The comments are the first that Jiang has made in public on monetary policy since he joined the PBOC's monetary policy committee earlier this year.

He said he was not speaking for the panel, which gives advice on China's monetary stance but does not formulate policy.

The chief of ICBC said China was facing substantial price pressures, made worse by the Federal Reserve's fresh easing of monetary policy.

"It's clear to us that inflationary pressure over this period of time has been very great. Hopefully, the inflation situation can be brought under control with a range of macro-economic policies," Jiang said.

"However, the US has gone for a quantitative easing policy to print money on a massive scale. It is going to exacerbate the problem of excess liquidity on a global scale. That's the complicated situation China is facing," he added.

The US central bank said last week it would create money to buy $600 billion of US government bonds. Economists expect much of the cash to end up overseas, putting pressure on countries like China to find ways of fending off unwanted capital inflows.

Against this background, Jiang said further tightening by the PBOC could encompass all monetary tools -- not just possible interest rate increases.

"That's why (the central bank) is talking about making its policies more flexible and targeted. In my view, that means policies will be adjusted in accordance with new changes," he said.

Jiang called the global recovery "very fragile" and noted jobless rates in the United States and Europe remained high.

"It will be a bumpy road to recovery," he said.