China’s monetary tightening in 2011 may be mainly in the first half as officials tackle the fastest inflation in more than two years, JPMorgan Chase & Co. and Morgan Stanley said.
The People’s Bank of China increased key one-year lending and deposit rates by 25 basis points on Christmas Day in its second move since mid-October. The change took effect yesterday. China’s stocks rose today and yuan forwards climbed to the highest level in five weeks as the decision bolstered speculation inflation will be contained.
Premier Wen Jiabao’s government aims to limit asset bubbles in the real-estate market and prevent rising prices from leading to social unrest after flooding the economy with cash from late 2008 to drive a recovery. Officials may keep raising interest rates and banks’ reserve requirements, sell bills to soak up cash and allow more gains by the yuan against the dollar, according to JPMorgan.
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Dean Popplewell
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