By Chris Oliver, MarketWatch
A previous version of this story misspelled Zhu Min's surname. The story has been corrected.
HONG KONG (MarketWatch) -- A top-ranking official at China's central bank said interest rates hikes were a "heavy-duty weapon" and noted recent gains in consumer prices were because of seasonal factors, signaling there's no hurry to raise borrowing costs to cool down the world's fastest-growing major economy.
"We want to make sure to maintain the stability, the liquidity and the growth," the People's Bank of China Vice Gov. Zhu Min told an investor conference in Hong Kong on Thursday. "We are very careful about interest rates because this is a heavy-duty weapon."
He added the central bank has a wide range of tools at its disposal, apart from interest rate hikes, that could be used to control the economy.
U.S.-China Currency Tensions in Washington
U.S. and China are headed towards a currency war, one international expert told lawmakers, as Congress considers a tariff on Chinese imports. Video courtesy of Reuters.
Analysts said the comments essentially poured cold water on the idea that China would follow the recent policy tightening moves of Australia, Malaysia and India.
"We take this as a signal that a rate hike is not imminent," said Bank of America Merrill Lynch's Ting Lu in a research note Thursday.
Merrill forecasts China will lift saving deposit rates by 0.27-percentage point and lending rates by 0.18-percentage point in the fourth quarter, capping its only adjustments to policy rates this year.
Measures to tighten using alternative tools, such as the reserve ratio requirement, were showing up in cooling loan growth, Zhu said. He said loan growth among the nation's banks will soften in March compared to the previous month, but gave no figures.
"Loan growth has slowed down, so the tightening has been effective," Zhu said.
The central banker also said China was committed to shrinking its trade gap by encouraging growth in imports. See full story on Zhu's comments on China's trade gap
Meanwhile, the spike in the consumer price index during the first two months of the year were related to a surge in food prices during the traditional spring festival, and likely will not prove long lasting, Zhu said.
"I don't think inflation is there," Zhu said.
In comments referring to the yuan, Zhu said China will strive to fine tune its exchange rate regime, but didn't offer any clues as to when it would de-link its currency from the U.S. dollar. The yuan has been held in virtual lock to the greenback since July 2008.
"China should, China would, continue to improve its managed floating rate regime based on market demand reference to a basket of currencies," Zhu said
Merrill's Ting said those comments may signal the PBOC is warming to the idea of adopting a currency regime more akin to Singapore, which would involve benchmarking the yuan to a basket of currencies, and allowing it to trade within a narrow band. The structure would enable a crawling fluctuation in the currency's value.
Zhu said the real exchange rate of the Chinese currency had been appreciating, but didn't elaborate on what he meant.
He also downplayed the potential economic fallout from a sudden drop in housing prices.
High real estate prices, he said, posed social problems but didn't raise many concerns on the financial-crisis radar.
As an illustration, Zhu said the slump in the Shanghai Composite Index that began in October 2007, wiped out about 70% of its value but had little effect on the underlying economy, partly because few investors bought shares with borrowed money.
Similarly, the exposure of Chinese banks to the housing market was fairly limited given their resources, while non-performing loans were negligible, he said.
Zhu said the robustness of China's banking system was "very much underestimated."