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Ruh-Roh, Again: Chinese Now Worried About Inflation, Raise Interest Rates

Posted on | February 8, 2011 | 7 Comments

First, the end of QE2, and now Beijing tightens up credit:

China staged its third interest rate increase since October on Tuesday, the latest sign of the authorities’ intensifying efforts to temper the blistering pace of economic growth and prevent already worrisome inflation levels from escalating further.
The central bank in Beijing raised its benchmark one-year deposit rate by a quarter of a percentage point, to 3 percent, and its one-year lending rate by a similar amount, to 6.06 percent. . . .
In fact, many economists forecast still more increases and other growth-dampening measures during 2011 as the battle to combat price rises intensifies.
“There are plenty of reasons to expect inflation to pick up further in the next few months,” Brian Jackson, an analyst at the Royal Bank of Canada in Hong Kong, wrote in a note following the rate rise announcement Tuesday.

So while the Fed has been lending at an effective zero rate since late 2008 — and has actually been buying Treasury bonds to make even more credit available — the Chinese central bank is raising interest rates to slow down an overheated economy. Given the fact that the Chinese are holding a lot of U.S. debt, what will be the impact on the American economy? Stay tuned.

Category: China, Economics

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