China’s central bank, the People’s Bank of China has said price levels will remain high throughout the first half of the year as the nation is facing an ‘increasing’ risk of inflation.

The bank said in its monetary policy report for the fourth quarter that structural supply shortfalls and rising international prices would hold domestic price levels at a high level for a period of time.

Growth of the consumer price index (CPI), a barometer of inflation, surged to an 11-year high of 7.1% last month.

Analysts said although raw agriculture prices went up substantially last month, it normally takes one or two months for the pressure to pass through to manufactured and processed food items, which will add pressure to inflation in the following months.

Food price rises may in turn spill over to other sectors, pushing up prices of other products and labor costs.

Ma Jun, chief economist of Deutsche Bank in China said, ‘The underlying inflationary pressure is even stronger than the January headline number is suggesting, and CPI inflation will likely make two more new highs to reach 7.8% in February and 8% in March.’

With a view to cushioning the impact of international commodity price rises, the central bank said it would further use more flexible exchange rate to reduce inflationary pressure.

The renminbi, has appreciated more than 13% since it was de-pegged from the dollar in July 2005. It climbed 6.9% against the US dollar in 2007.

The central bank report said most exporters had adapted better than expected to the stronger renminbi.
Source: China View

The People’s Bank of China has raised its economic growth forecast. According to the report published in the China Securities Journal the economy may expand 11.6% this year, faster than the agency’s previous estimate of a 10.8% expansion. Inflation this year will be 5%, up from 3.2% forecast previously, and the trade surplus will widen to about $250 billion this year from $177.5 billion in 2006.

The Government is concerned that a surge in lending is creating a bubble, which would drive up bad loans should it collapse. Investment in real estate development jumped 29% in the first eight months of this year.

On September 12 the World Bank raised its 2007 China growth forecast to 11.3%. One forecast is factory and property spending which it is thought will rise 25 to 26% this year.
Source: Sydney Morning Herald

The People’s Bank of China, China’s central bank (which should not be confused with the Bank of China or the Central Bank of China and has the power to control monetary policy and regulate financial institutions in China), has said it will require commercial banks to set aside more money in reserves to mop up liquidity and curb lending. This is the seventh such increase this year.

According to the People’s Bank of China’s website the reserve ratio — the amount of money a commercial bank must park at the central bank — will increase 0.5 percentage point on RMB deposits to 12.5% starting September 25.

The central bank said, ‘The move is aimed at managing liquidity in the banking system and curbing excessive growth of credit.’

The increase in the reserve requirement was the tenth since June 2006. Those steps were accompanied by four interest rate increases this year — the latest on August 22.

All of which are measures designed to rein in inflation and moderate the booming economy.

China’s Consumer Price Index, the main gauge of inflation, jumped 5.6% in July, the biggest increase since February 1997. This pushed the January-to-July inflation rate to 3.5%, above the central bank’s 3% target for the year.

Financial analysts expect more moves by the central bank later this year.

China’s M2, the broad measure of money supply including cash and deposits, grew 18.5% in July from a year earlier to RMB38.39 trillion ($5.05 trillion).
Source: Shanghai Daily

The People’s Bank of China issued RMB101 billion ($13 billion) worth of central bank notes to a handful of financial institutions in an effort to absorb excess liquidity from commercial banks.

The 3-year notes carry an annual interest rate of 3.69%. The notes were sold to four major State-owned commercial banks, share-holding banks and municipal commercial banks.

China Construction Bank, the Industrial and Commercial Bank of China, Bank of China and the Agricultural Bank of China bought RMB30 billion, RMB27 billion, RMB17 billion and RMB12 billion respectively. Other banks such as China Minsheng Banking and Shanghai Pudong Development Bank also took in substantial amounts.

Analysts said that due to recent poor sales of ordinary notes in open market operations, the central bank had to issue them to particular institutions to absorb excessive liquidity and prevent the economy from overheating.

Meanwhile, in further financial moves, according to the Beijing Times the Ministry of Finance will issue RMB600 billion ($78.9 billion) of special treasury bonds to the Agricultural Bank of China next week, the first batch of a planned RMB1.55 trillion sale.

The Agricultural Bank of China will then act as an intermediary channeling the bonds from the Ministry of Finance to the central bank, which in exchange will release part of its foreign exchange reserves for overseas investment.

The central bank will use them as a financial tool to absorb excessive liquidity in the domestic market.

By the end of June, China had the world’s largest foreign exchange reserves of more than $1.3 trillion. Investing the huge sum into more profitable areas is an important task for financial regulators. Analysts also believe that the issuance of the special bonds suggests a new round of foreign exchange investment is on its way.
Source: China Daily in two separate stories thus China Daily and China Daily.