Interest rates could rise in fight against inflation
Source: Agencies |
January 8, 2011, Saturday
|
Print Edition
Print Edition
China's central bank says fighting inflation will receive higher priority this year, raising the possibility of more interest rate rises at a time when other major economies are trying to boost growth.
The announcement follows repeated pledges by the government to cool inflation that jumped to a 28-month high of 5.1 percent in November.
"Stabilizing price levels will receive more prominent status," the People's Bank of China said in a report issued after an annual planning meeting that ended on Thursday. The bank said it will "effectively manage liquidity and control financial conditions that might cause excessive price increases."
Chinese stocks declined in early trading yesterday after the announcement but the main index returned to positive territory later.
The inflation surge highlights the contrast between China, which rebounded quickly from the global crisis and is trying to restore normal financial conditions, and the United States and struggling European economies.
Higher interest rates could further slow China's growth, possibly cutting its demand for factory machinery, industrial components, iron ore and other imports from the US, Europe, Australia and its Asian neighbors.
China's rapid expansion slowed to 9.6 percent in the three months ending in September, down from 10.3 percent the previous quarter, though still the highest of any major economy. Analysts expect that to slow further this year as the government clamps down on credit and steers growth to a more sustainable level.
Analysts blame the price rises on the flood of bank lending that helped China ward off the global downturn. Inflation so far is limited mostly to food, but analysts say price pressures will spread unless China raises interest rates further and tightens access to credit.
Inflation has been well above the government's target of 3 percent since late last year and some analysts expect it to rise further in December and January.
The central bank has raised interest rates twice in the past three months, most recently on Christmas Day.
The announcement follows repeated pledges by the government to cool inflation that jumped to a 28-month high of 5.1 percent in November.
"Stabilizing price levels will receive more prominent status," the People's Bank of China said in a report issued after an annual planning meeting that ended on Thursday. The bank said it will "effectively manage liquidity and control financial conditions that might cause excessive price increases."
Chinese stocks declined in early trading yesterday after the announcement but the main index returned to positive territory later.
The inflation surge highlights the contrast between China, which rebounded quickly from the global crisis and is trying to restore normal financial conditions, and the United States and struggling European economies.
Higher interest rates could further slow China's growth, possibly cutting its demand for factory machinery, industrial components, iron ore and other imports from the US, Europe, Australia and its Asian neighbors.
China's rapid expansion slowed to 9.6 percent in the three months ending in September, down from 10.3 percent the previous quarter, though still the highest of any major economy. Analysts expect that to slow further this year as the government clamps down on credit and steers growth to a more sustainable level.
Analysts blame the price rises on the flood of bank lending that helped China ward off the global downturn. Inflation so far is limited mostly to food, but analysts say price pressures will spread unless China raises interest rates further and tightens access to credit.
Inflation has been well above the government's target of 3 percent since late last year and some analysts expect it to rise further in December and January.
The central bank has raised interest rates twice in the past three months, most recently on Christmas Day.
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