China rate rise talk builds as loans rise

The Pak Banker - - International3 -

BEI­JING: China is likely to raise in­ter­est rates in the com­ing days in a demon­stra­tion of the govern­ment's re­solve to tame in­fla­tion, an of­fi­cial news­pa­per said on Tues­day.

In a ban­ner head­line across its front page, the China Se­cu­ri­ties Jour­nal said this week­end of­fered a "sen­si­tive win­dow" for a rate rise, which would be the coun­try's sec­ond af­ter a sur­prise in­crease in Oc­to­ber, the cen­tral bank's first rate hike since 2007.

An in­crease in rates would also put flesh on the bones of Bei­jing's an­nounce­ment late last week that it was switch­ing to a "pru­dent" mon­e­tary pol­icy from the "ap­pro­pri­ately loose" stance of the past two years.

The re­port weighed on Asian stock mar­kets in early trade, though the coun­try's main in­dex in Shang­hai later pared losses. Chi­nese as­set mar­kets have tum­bled in re­cent weeks as in­vestors have priced in more tight­en­ing.

The news­pa­per said the tim­ing was right for a rate rise with of­fi­cial monthly eco­nomic in­di­ca­tors, no­tably the con­sumer price in­dex (CPI), likely to show an in­crease in in­fla­tion­ary pres­sure when re­leased on Mon­day, De­cem­ber 13.

"With ref­er­ence to the cen­tral bank's record of rais­ing in­ter­est rates just ahead of the re­lease of CPI, this week­end will pro­vide a win­dow for a pos­si­ble pol­icy change," the news­pa­per said, with­out cit­ing any source.

China's CPI in Novem­ber may have ac­cel­er­ated to a 27month high of 4.7 per­cent from a year ear­lier, ac­cord­ing to a Reuters poll, up from a 4.4 per­cent pace in Oc­to­ber.

"The gen­eral trend China's mon­e­tary pol­icy of is ap­pro­pri­ate tight­en­ing on the ba­sis of the pre­vi­ous ex­tremely loose stance," said Chen Ji­agui, a se­nior govern­ment econ­o­mist.

Traders in China's in­ter­bank mar­ket said big len­ders have al­ready pre­pared enough money for an­other 50 ba­sis point in­crease in banks' re­quired re­serves, which are al­ready at a record high for big banks.

So far, the Peo­ple's Bank of China has re­lied pri­mar­ily on re­serve re­quire­ments to mop up ex­cess cash in the econ­omy, of­fi­cially or­der­ing len­ders to lock up more of their de­posits five times this year.

Banks had also been hold­ing back from lend­ing in an­tic­i­pa­tion of more govern­ment moves to curb in­fla­tion, driv­ing up short-term money mar­ket rates. But these rates tum­bled on Tues­day af­ter large banks caved into pres­sure from smaller in­sti­tu­tions which had re­fused to bor­row at the higher rates.

But con­cern over fur­ther hot money in­flows could make Bei­jing hes­i­tate be­fore rais­ing in­ter­est rates ag­gres­sively.

Com­ments from Chair­man Ben Ber­nanke that the Fed­eral Re­serve could in­crease its com­mit­ment to buy $600 bil­lion in U.S. govern­ment bonds has re­in­forced fears in Bei­jing that money printed in the United States will com­pound the in­fla­tion­ary headache in China.

"I don't think China should in­crease in­ter­est rates on a con­tin­u­ous ba­sis," said Chen Kexin, an econ­o­mist with a govern­ment-spon­sored mar­ket mon­i­tor­ing agency in Bei­jing.

"Such a move will def­i­nitely at­tract hot money in­flows. For do­mes­tic in­fla­tion, it would be adding fuel to the fire," he said. -Reuters

BAN­GA­LORE: New Zealand's Bren­don McCul­lum, cen­ter, plays a shot as In­dia's Parthiv Pa­tel, left, re­acts dur­ing their fourth one day in­ter­na­tional cricket match, in Ban­ga­lore, In­dia. In­dia leads the se­ries 3-0. -Ap

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