Tags: china | inflation

China Tightens Monetary Policy to Curb Inflation

By    |   Monday, 13 Jul 2009 11:26 AM

While most of the world’s central banks impose massive easing programs to pull their economies out of recession, China is going in the opposite direction.

Its central bank is tightening monetary policy to prevent bubbles from breaking out in its relatively healthy economy.

China's central bank plans to sell an unusually large amount of bills to drain liquidity from the money market, after a jump in bank lending during June raised fears of bad loans, asset-price bubbles and inflation, The Wall Street Journal reported.

Chinese banks made 1.530 trillion yuan ($223.98 billion) of new loans in June, preliminary Chinese data indicate, the third-highest amount so far this year.

That flood of lending came despite the government's warning against sparking credit risk. The loans have helped the economy flourish, but now there is worry about overheating.

The People's Bank of China plans to sell 50 billion yuan of three-month bills and 50 billion yuan of one-year bills in the open market. That would constitute the biggest single-day sale since September.

"The central bank may not change stance, but it will do some serious tweaking," Ben Simpfendorfer, an economist with Royal Bank of Scotland, told The Journal. "It's definitely time to start tightening policy."

Others agreed. “The central bank’s open-market operations suggest concerns that the rapid surge in new bank lending in the first half of this year could fuel inflation,” Tommy Xie of Oversea-Chinese Banking Corp., told Bloomberg.

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While most of the world’s central banks impose massive easing programs to pull their economies out of recession, China is going in the opposite direction.Its central bank is tightening monetary policy to prevent bubbles from breaking out in its relatively healthy economy....
china,inflation
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2009-26-13
Monday, 13 Jul 2009 11:26 AM
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