China expected to speed up monetary tightening

China will likely speed up tightening of its monetary policy this month as inflationary risks in the country build up further following the Lunar New Year''s holiday, analysts predicted today.

The forecast comes as China''s inflation is estimated to have grown more than 5% in January because the Lunar New Year''s Day drives up seasonal demand for consumer products in the country.

Juhn Jong-kyu, an analyst at Samsung Securities Co, said the Chinese authorities may raise the country''s benchmark interest rate after the six-day holiday, which ends today, in a bid to send a strong message to the overheated markets.

Prices of vegetables in China's two largest cities, Beijing and Shanghai, rose 16.8% on-year ahead of the Lunar New Year''s Day with the cost of pork soaring 39.7%, he estimated.

"Prices of agricultural products soared higher compared to previous years due to rising costs in labor and fertilisers as well as to unusual drought in the northeastern region," Juhn said.

Sung Yeon-ju, a China analyst for Daeshin Securities, also forecast there is a great possibility that the Chinese central bank will raise interest rates.
"As January economic indicators such as consumer price index and growth of new loans are due next week, China is likely to gear further into a tight grip," she said.

Sung said concerns are growing about excessive liquidity in the market, with new loans drawn from banks from January 1-24 reaching 1.2 trillion yuan (USD 182.3 billion).

In 2010, China''s new lending amounted to 7.95 trillion yuan, exceeding the government''s target of 7.5 trillion yuan.

As this year''s target is set at around 7.2 trillion yuan, the new loans in January may already have reached 17% to 18% of the target for full 2011.

In the last week of January, some major commercial banks in China were unofficially ordered to hike their lending rates by 10% to as much as 45% in order to not exceed the lending quota set by the Chinese central bank.
Soaring consumer prices have been a major macroeconomic issue for Chinese leaders as the country faces high inflation risks amid rapid economic growth.

Since late October, China has adjusted banks'' reserve ratios four times and raised interest rates twice as the world''s second-largest economy grapples with surging inflation.