Chinese Premier Wen Jiabao said on Tuesday that how to properly adopt various monetary policies is a great test to China, as the changes in interest rates and exchange rates have pros and cons.
"No matter what monetary policies are adopted, we shall weigh their advantages and disadvantages and take both aspects into consideration," said Wen at a press conference after the annual full session of China’s top legislature.
China has made its currency regime more flexible by letting the yuan appreciate steadily since July 2005, when the government started to de-peg the yuan from the greenback.
"So far, the yuan has appreciated about 15 percent against the US dollar in the past two years, with the appreciation step even faster recently," Wen said.
But he warned that the changes in exchange rates and interest rates will have pros and cons, and any monetary policy shall be adopted with full and comprehensive consideration.
Last year, the central bank raised banking reserve ratio 10 times and interest rates six times to soak up liquidity to help curb surging prices. The reserve ratio was raised once in 2008. Economists expect further interest rate hikes this year.
Anyway, China still has good economic fundamentation with huge market potentials, especially in rural areas, Wen said.
"We shall have confidence in China’s economic development," said the premier.