Bei­jing will tighten mon­e­tary pol­icy in 2011

The Pak Banker - - International3 -

BEI­JING: China's lead­er­ship called Fri­day for tighter con­trol over bank lend­ing and other spend­ing next year, a shift in strat­egy as Bei­jing fights in­fla­tion and tries to guide rapid growth to a sus­tain­able level.

The rul­ing Com­mu­nist Party's top body, the Polit­buro, or­dered the switch in mon­e­tary pol­icy "from rel­a­tively loose to pru­dent," the govern­ment's Xin­hua News Agency said.

The an­nounce­ment re­in­forces a change in di­rec­tion charted this year of mod­est tight­en­ing af­ter the govern­ment and banks flooded the econ­omy with easy money to ef­fec­tively ward off the global eco­nomic cri­sis in 2009.

Bei­jing raised in­ter­est rates Oct. 19, high­light­ing its di­ver­gence from the United States and other ma­jor economies, which are try­ing to boost growth. The cen­tral bank said in its lat­est quar­terly re­port it would "grad­u­ally re­turn pol­icy to a nor­mal po­si­tion," in­di­cat­ing in­ter­est rates would rise. The govern­ment is try­ing to cool in­fla­tion that spiked to 4.4 per­cent in Oc­to­ber - driven by food costs jump­ing more than 10 per­cent - and well above the of­fi­cial 3 per­cent tar­get. An­a­lysts say Novem­ber in­fla­tion might rise still higher.

"Growth seems pretty solid and in­fla­tion is higher than ex­pected," said Tom Or­lik, an an­a­lyst in Bei­jing for Stone & McCarthy Re­search As­so­ci­ates. "Put that to­gether and it makes sense to shift pol­icy po­si­tion."

An­a­lysts ex­pect more rate hikes in com­ing months. Chi­nese stocks have fallen amid in­vestor con­cern that might slow growth or choke off credit that is help­ing to sup­port stock prices.

The Oct. 19 hike pushed the lend­ing rate on a one-year loan to 5.56 per­cent. JP Mor­gan & Co. says it ex­pects three to four more in­creases be­gin­ning as early as this month and push­ing the bench­mark rate to 6.31 per­cent by mid-2011. Chi­nese reg­u­la­tors also have reined in credit by forc­ing banks to hold back more money as re­serves and tighten lend­ing stan­dards.

Eco­nomic growth eased to 9.6 per­cent in the three months end­ing in Septem­ber af­ter hit­ting a post-cri­sis peak of 11.9 per­cent in the first quar­ter. The World Bank and pri­vate sec­tor econ­o­mists ex­pect full-year growth of up to 10 per­cent.

In­fla­tion has risen well above the 2.5 per­cent paid on Chi­nese bank de­posits. That has trig­gered an out­flow of cash into stocks and real es­tate as fam­i­lies seek a bet­ter re­turn, fu­el­ing fears of a dan­ger­ous price boom and bust.

Bei­jing is try­ing to rein in food prices by launch­ing ef­forts to in­crease pro­duc­tion of veg­eta­bles and other ba­sic goods. Au­thor­i­ties are crack­ing down on hoard­ing and spec­u­la­tion they say are partly to blame for the price rises.

An­a­lysts be­lieve plans for more rate hikes face op­po­si­tion from of­fi­cials who worry about rais­ing bor­row­ing costs, es­pe­cially for in­vest­ment agen­cies run by lo­cal gov­ern­ments that owe hun­dreds of bil­lions of dol­lars to state banks. "You raise the cost of bor­row­ing for those peo­ple and you could have them get­ting into trou­ble," Or­lik said. "So they are go­ing to be push­ing hard against any rapid changes in in­ter­est rates." -Ap

DHAKA: Bangladesh's cap­tain Shakib Al Hasan, right, and Mush­fiqur Rahim, left, con­grat­u­late team­mate Ab­dur Raz­zak, cen­ter, for scor­ing a hat trick dur­ing the sec­ond one-day in­ter­na­tional cricket match against Zim­babwe in Dhaka, Bangladesh, Fri­day. -Afp

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