People’s Bank of China

China’s monetary tightening in 2011 is a effort to tackle the fastest inflation in more than two years, according to WorldWatch chief analysts.

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 and according to the current 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 an economic recovery. Officials stated China will raise rates as many as three times in the first half of next year..

These policy moves will be front-loaded in coming months, as headline inflation figures remain high and economic growth faces overheating risks early next year.
The benchmark lending rate rose to 601 percent, compared with 7.47 percent before cuts from late 2008 to counter the global financial crisis. It will climb to 6.56 percent by the end of first half next year.
The deposit rate increased to 2.05 percent, compared with the 5.1 percent annual pace of inflation in November.
Officials have raised bank reserve ratios seven times this year and trimmed loan growth from record levels. They also in June scrapped the yuan’s almost two-year peg to the dollar as part of winding down crisis policies.
Since then, the currency has gained about 3 percent, with non-deliverable forwards showing that traders are betting on a further increase of about 2 percent in the next 12 months.
Consumer prices rose 6.1 percent in November from a year earlier, the most in 28 months, mainly driven by food costs. Across 70 major cities, property prices climbed 8.1 percent.
China’s economy may expand 8.6 percent in 2011, the International Monetary Fund estimated in October. That compared with estimates that U.S. growth will be 2.1 percent and the euro area expansion will be 1.5 percent.