Bank of China

China raised interest rates for the sixth time in less than a year as Asian nations step up efforts to damp inflation stoked by surging commodity prices, and the central bank signaled that it would do more.
The Bank of China increased the benchmark one-day bond repurchase rate by a quarter of a percentage point to 2.75 percent, China joins Thailand in tightening monetary policy this month after economic growth and oil at more than $100 a barrel helped drive inflation to a seven-month high. Interest rates are on a rising trend and the central bank still needs to bring
borrowing costs to “normal” levels as the economy is expanding,

Inflation is likely to further accelerate until the middle of this year in China, that means pressure on the central bank to keep raising rates will continue.
Consumer prices advanced 3.14 percent in March from a year earlier, the fastest pace since August last year. Core prices, which exclude fresh food and fuel, rose 1.62 percent, accelerating from a 1.45 percent pace in February. The central bank uses the core index to guide policy and aims to keep it below 3 percent.

The central bank raised rates by a quarter point each in July, August, December, January and March. Counterparts from India to South Korea also boosted borrowing costs last month, while China has lifted reserve ratios and increased its deposit and one-year lending rates this month.

If crude prices are not controlled then a slowing of most Asian economies is certain..

Chinas Inflation Pace

China’s central bank will increase interest rates further in coming months as the three moves since mid-October leave household wealth being eroded by accelerating inflation, mainly due to the international crude prices and the OPEC failure to control them.

The People’s Bank of China yesterday raised the one-year lending rate by a quarter point to 6.09 percent and the one-year deposit rate an equivalent amount to 3.2 percent. The deposit rate remains almost 2 percentage points less than the pace of consumer-price gains, giving savers an incentive to buy goods and assets.

Consumer prices rose 5.3 percent in January

China growth

Crude oil fell the most in nine weeks on concern China is going to raise interest rates to combat inflation, slowing economic growth and demand for energy.

Oil dropped as much as 3.2 percent after China said inflation was 4.6 percent in December and that the economy of the world’s biggest energy-consuming country grew 9.8 percent in the fourth quarter. Prices also declined after the Energy Department said that U.S. crude supplies rose for the first time in seven weeks.

Worries about what actions China will take to slow the economy are sending the market lower. Any Chinese move will lower demand growth.”

Crude oil for February delivery fell $2.19, or 2.4 percent, to $88.67 a barrel at 12:39 p.m. on the NY Mercantile Exchange. Futures dropped as much as $2.86 to $88, the biggest decline since Nov. 12. Oil is up 14 percent from a year ago.

February futures expire today. The more active March contract slipped $2.11, or 2.3 percent, to $89.70.

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.

China "mass liquidation"

Stocks and commodities prices fell sharply Friday as investors confirmed that China will slow down its surging economy.
The Dow Jones industrial average dropped nearly 120 points in early afternoon trading, led by sharp losses in energy and materials stocks.
Concerns that China will raise interest rates in order to fight inflation brought worries that demand from China could wane for a wide variety commodities including crude oil, metals and grains.
Talk of the interest-rate hike in China has led to "mass liquidation" in the commodities market. Losses among commodities accelerated throughout the day. Benchmark crude is down more than 3 percent. Silver prices fell more than 5 percent and soybeans are down nearly 5 percent.
China will formally announce next week the raise in interest rates.

The Chinese crash...

WorldWatch said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.
The Shanghai Composite Index has failed to regain its 2009 high while industrial commodities and shares of Australian resource exporters are acting “heavy”.

The opening of the World Expo in Shanghai last week is “not a particularly good omen, citing a property bust and depression that followed the 1873 World Exhibition in Vienna.
The market is telling you that something is not quite right.

The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”

This crash will start with a possible 12% drop in fuel demand...