Close on the heels of a China central bank adviser hinting at an imminent rate hike, a state-controlled newspaper has said more rate hike is on the cards, probably as early as in February, confirming the dominant view that Beijing will pull out all the stops to address what is becoming a serious political problem.
The China Securities Journal report did not specify when the hike will kick in, but the report adds more currency to the consensus view among analysts and economists that China will be forced to hike rates as a sharp rise in prices is expected in the coming months.
Earlier, Li Daokui, an adviser to the Chinese central bank, told reporters in Beijing that it would be “understandable” if the central bank raised rates to bolster its fight against inflation.
A commodity price boom and fears of an asset bubble have forced Chinese policymakers in recent times to tighten monetary policy. Chinese central bank raised the bank reserve ratio last Friday by half a percentage point to curb the rise in inflation even as rising prices in China was highlighted by the U.S. as a factor affecting the trade imbalances.
The Chinese central bank had raised interest rates by 25 basis points to 5.81 percent in December. China stepped off the stimulus route by raising rates in October last year, the first rate hike in nearly three years.
China has also repeatedly told banks to keep away larger deposits as reserves, a move that will cripple banks' capacity to lend. This measure jells with Beijing's broader objective of mopping up stimulus and tightening policy in the long term.
The Chinese National Bureau of Statistics said on Thursday the economy recorded a 10.3 percent growth in 2010, coming back strongly from the global crisis.
Data showed inflation remained high at 4.6 percent though it showed downward movement in December 2010. China has been battling higher commodities prices and asset bubble fears as the economy got into a high-speed growth track in recent years. Chinese CPI was 5.1 percent in November last year.
As a commodity boom, possible rise in labor costs as well as a highly liquid financial system threaten to drive inflation higher, the focus is on China's monetary tightening policies this year.
The Chinese Communist Party's politburo announced early last month the country will shift to prudent monetary policy in 2011. It was a marked defection from the professed “moderately loose” monetary policy followed by the government since late 2008.