Make us your home page
Instagram

Inflation, rapid growth drive China to raise interest rates, curb easy credit

BEIJING — China's leadership ordered a shift from easy credit to a "prudent monetary policy" Friday, as Beijing steps up its fight against inflation and tries to guide rapid growth to a sustainable level.

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.

The ruling Communist Party's top body, the Politburo, decided to "implement an active fiscal policy and a prudent monetary policy" in 2011, according to a Cabinet statement.

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, which spiked to 4.4 percent in October — well above the official 3 percent target — driven by a 10.1 percent jump in food costs. Analysts say November inflation might rise even more.

"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."

Chinese stocks have fallen amid investor concern that a series of rate increases might slow growth or choke off credit that is helping support stock prices.

The Oct. 19 increase pushed the lending rate on a one-year loan to 5.56 percent. JP­Morgan says it expects three to four more increases starting as early as this month, pushing the benchmark rate to 6.31 percent by mid 2011.

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.

Analysts cite resistance to higher rates by officials worried 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."

Inflation, rapid growth drive China to raise interest rates, curb easy credit 12/03/10 [Last modified: Monday, November 7, 2011 1:26pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, Associated Press.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Tampa Bay Times honored for top investigative story in Gerald Loeb annual business awards

    Business

    The Tampa Bay Times was a co-winner in the investigative category for one of the highest honors in business journalism.

    Tampa Bay Times current and former staff writers William R. Levesque, Nathaniel Lash and Anthony Cormier were honored in the investigative category for their coverage of "Allegiant Air" in the 60th Anniversary Gerald Loeb Awards for Distinguished Business and Financial Journalism. 
[JAMES BORCHUCK   |   Times

]

  2. Strategic Property Partners launches website for Water Street Tampa

    Business

    Strategic Property Partners has launched its official website for Water Street Tampa, its 53-acre redevelopment project in downtown Tampa Tuesday.

    Strategic Property Partners on Tuesday announced the name of its new development: Water Street Tampa. [Photos courtesy of SPP]
  3. ReliaQuest CEO Brian Murphy named sole Tampa Bay winner in EY state entrepreneur contest

    Business

    ReliaQuest founder and CEO Brian Murphy was named one of nine winners statewide and the only one from the Tampa Bay area in the Ernst and Young Entrepreneur Of The Year 2017 Florida Awards program. Murphy won in the IT security division after starting ReliaQuest in 2007. Five of the nine winners were from the Miami …

    Tampa's ReliaQuest founder and CEO Brian Murphy was named one of nine winners statewide and the only one from the Tampa Bay area in the Ernst and Young Entrepreneur Of The Year 2017 Florida Awards program. Murphy won in the IT security division after starting ReliaQuest in 2007.
  4. U.S. Rep. Charlie Crist and estranged wife Carole put Beach Drive condo on the market

    Real Estate

    ST. PETERSBURG — U.S. Rep. Charlie Crist and his estranged wife, Carole, have put their Beach Drive condo on the market for $1.5 million.

    Former Florida Gov. and current U.S. Rep. Charlie Crist and his estranged wife, Carole, have put their condo in downtown St. Petersburg on the market for $1.5 million. [Courtesy of Rhonda Sanderford]