China vows to tighten monetary policy in 2011: Xinhua

Saturday, 4 December 2010 00:01 - - {{hitsCtrl.values.hits}}

BEIJING, (AFP) - China pledged Friday to tighten monetary policy next year -- a sign that new interest rate hikes are imminent, analysts say, as the world’s second-largest economy steps up its battle against inflation.

The ruling Communist party’s politburo decided to shift its monetary policy stance from “relatively loose” to “prudent”, the Xinhua news agency reported.

The politburo said it should “implement an active fiscal policy and a prudent monetary policy, to increase the focus, flexibility and effectiveness of macro-economic adjustments,” the report said.

A senior official at China’s central bank last week warned that inflationary pressures were building because of flows of capital into the country and expectations of a revaluation of the yuan.

The nation’s consumer price index rose 4.4 percent year-on-year in October, well above the government’s full-year target of three percent, with the prices of 18 types of vegetable rising more than 60 percent.

Analysts said the government’s announcement signalled a new phase in the country’s efforts to curb spiralling prices.

“It’s a very clear signal that the rate hikes are imminent. We’re forecasting one by the end of the year and another three in 2011,” Brian Jackson, a senior strategist at the Royal Bank of Canada, told AFP.

“The rates are too low given inflation. They’ve only moved rates by 25 basis points since the start of 2009 so this looks increasingly inappropriate for the current situation.”