12-26-2010 09:14 BJT
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With less than a week remaining before the end of 2010, the People's Bank of China has decided to raise interest rate for the second time in just over two months.
Unlike in past cases, no important economic stats were announced recently. Experts say the timing shows that the nation has become more flexible in shifting its monetary policy.
The latest rate hike comes after the central bank's vice governor said on Friday that China would move its overall money supply to a normal level, using various policy tools. Economists believe tightening the money supply is the best way to curb inflation.
Ba Shusong, State Council Researcher, said, "In early December, China's Central Economic Work Conference announced a shift to a prudent monetary stance, from the moderately loose policy. Today's rate hike accelerates the change. This move is aimed at reining in inflationary expectations, as well as narrowing the gap between gains in consumer prices and savings rates."
Saturday's announcement may indicate that policymakers now see curbing inflation as a more pressing job. According to surveys, the proportion of Chinese citizens satisfied with current price levels has hit an 11-year low. Analysts say the decision was made in consideration of next year's economic forecast.
Ba Shusong, said, "The rate increase comes at the right time, as Western countries are celebrating the Christmas holiday, thus avoiding overreactions from the global market."
Experts say China only has room for two or three such hikes, as higher interest rates will increase the risk of "hot money" movement. The State Council researcher adds that the government will step up regulation of capital inflows, without specifying which measures will be taken.
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