China's fourth interest-rate increase in less than six months signaled the government’s determination to “front-load” monetary tightening in an effort to defuse overheating risks. The People’s Bank of China yesterday boosted its benchmark one-year lending rate by a quarter point to 6.31 percent, making its announcement at the end of a three-day holiday.
Premier Wen Jiabao’s government acted ahead of a report forecast to show consumer prices climbed 5.2 percent last month from a year before, the fastest pace since 2008. He used stronger language at a meeting of lawmakers in Beijing last month, saying inflation is a “tiger” that once freed can be difficult to get back in its cage. He also said that “exorbitant” home-price increases in some cities were a top public concern and rising costs may undermine social stability.
Chinese officials may be on guard against increased inflows of “hot money,” or speculative capital, as yesterday’s move widens the differential with rates in developed economies. The nation may face “relatively large” risks from cross-border capital flows, according to Deng Xianhong, deputy director of the State Administration of Foreign Exchange
3 comments:
It is interesting to see the consensus is that China will raise their rates before anyone else, including the US. Even though the global economy is pretty much all in recovery/growth stage, the world is still trying to be cautious about changing policies that affect the economy. Whether this is good, so that people dont try to manipulate/play markets as much, or bad, because no one is willing to make any moves, time will only tell.
Inflation is a big problem in China. With the increasing inflows of hot money, the housing price is still increasing. I read news today about China increases its gas price. It says that with the high gas price, it is hard for China to maintain its high growth rate, and it will also boost the inflation within domestic market.
I agree, China has been having huge issues as of late with inflation, due to the "hot money" flowing in. China will need to think about some brief changes in order to slow the inflow of this "hot money" and to decrease the inflationary price changes in gas for instance.
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