The attempts to fight Bernanke's inflation resume in Asia, where not even fully recovered from recent New Year celebration partying, the PBoC decided to hike rates for the second time in over a month. The reason: January inflation could be as high as 6% which means trouble for the various members of politburo. Benchmark one-year deposit rates will be lifted
by 25 basis points to 3 percent, while one-year lending rates will also
be raised by 25 basis points to 6.06 percent, the People's Bank of China
said. The rises take effect from February 9. For the time being markets are orderly, even though the announcement did send the EURUSD to the highs of the day.
A jump in lending at the start of this year may have exacerbated price pressures by adding to an excess of cash in the fastest-growing major economy. Inflation may have climbed to as much as 6 percent in January after snowstorms damaged crops and as demand climbed ahead of a Lunar New Year holiday, according to Daiwa Capital Markets.
“The government wants to front-load tightening to control lending,” Chang Jian, a Hong Kong-based economist at Barclays Capital, said before today’s announcement. “The rate hike is needed to anchor inflation expectations and to control inflation and asset-bubble risks.”
Consumer prices rose 4.6 percent in December and the economy expanded 9.8 percent in the fourth quarter, faster than the pace in the previous three months. Deutsche Bank AG said last month that inflation may average 5 percent for the full year, while UBS AG saw a 4.8 percent rate. November’s 5.1 percent rate was the fastest in 28 months.
Full PBoC statement:
People's Bank of China raised benchmark deposit and lending financial institutions, interest rates