China must raise interest rates if the country wants to avoid seeing an asset-price bubble burst, says Qin Xiao, chairman of China Merchants Bank, the country's sixth-largest bank.
Economic stimulus programs are inflating stock and real estate prices, and the country should not be afraid of tempering its red-hot growth rates.
“Monetary policy must not neglect asset-price movements,” Qin tells the Financial Times.
“Therefore it is urgent that China shifts from a loose monetary policy stance to a neutral one.”
Beijing has directed banks to lend on a massive scale, with new loans during the first nine months of this year up 149 percent over the same amount during the same time a year earlier, the newspaper reports.
Such an injection of liquidity has created a growing chorus of those who worry tighter monetary policy will be needed to ward off inflationary pressure.
The Chinese government, however, said recently that loose monetary policy is here to stay.
The China State Council, or the Cabinet, said “active fiscal policy and appropriately loose monetary policy” would remain, according to Reuters.
The government pointed out that while recovery was underway in China, imbalances still remained within the economy while overall global recovery should be slow enough to warrant expansionary monetary policy.
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