I didn't see anyone else reporting this. (Via Reuters)
BEIJING (Reuters) - China raised its benchmark interest rates on Thursday for the sixth time this year, in the latest in a series of tightening steps to contain inflation and prevent the world's fourth-largest economy from overheating.
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China is battling inflation of 6.9 percent, an 11-year high, which until now has been driven by soaring food prices but has shown worrying signs of spilling over to the broader economy.
A few days ago, it was the required reserve ratio, as the Wall St. Journal reported on December 10:
BEIJING -- In its first move since officially shifting to a tight monetary policy last week, China's central bank said it would raise the share of deposits that banks must keep on reserve for the 10th time this year to help cool the economy.
The increase in the required reserve ratio, which will rise by a full percentage point, could signal an acceleration in Beijing's efforts to bring the country's high inflation rate, and the threat of economic overheating, under control following a key meeting. The Central Economic Work meeting, which laid out economic policy priorities for 2008, ended Wednesday.
Rising inflation in China may be one of the most underreported stories out there right now. It's very simple. The Chinese government is finding out that when you open up capital markets, you make it harder to sterilize the currency interventions necessary to maintain control over their exchange rate. And it is this simple fact that has for years led me to believe that China can only wait so long before they approach something that resembles a floating exchange rate.
Early in this decade, shortly after it was announced that the Olympics would be in Beijing, I told people that 2008 might be the year.
So then there was this from Bloomberg yesterday:
Dec. 20 (Bloomberg) -- The yuan rose for a third day against the dollar as the U.S. Treasury refrained from naming China a currency manipulator in its semi-annual review of exchange rates.
Treasury Secretary Henry Paulson reiterated yesterday that China should let the yuan appreciate at a quicker pace and said gains since the currency's link to the dollar was scrapped in 2005 are ``not fast enough.'' Paulson was in China last week as part of talks to urge the nation to increase flexibility in the yuan to offset lopsided trade and help slow China's economy.
"It's good China wasn't labeled a manipulator,'' said Liang Futao, an analyst at Shenyin Wanguo Research and Consulting Co. in Shanghai. "The government may keep allowing the yuan to rise next year to help reduce import prices and ease inflation.''
The yuan advanced 0.1 percent to 7.3694 per dollar as of the 5:30 p.m. close in Shanghai, from 7.3768 yesterday, according to the China Foreign Exchange Trade System. The yuan has gained 6 percent this year, adding to the 3.4 percent pace in 2006.
So how much do YOU think the yuan will appreciate in 2008? More than 6 percent?
I think it is very telling that the U.S. did not label China a "manipulator" and that the rhetoric has cooled, albeit slightly. Sometimes the best clue is from the dog that didn't bark. If I were negotiating with China, knowing the importance of saving face in the Chinese culture, I would definitely back off if I thought that there was a chance that they were about to do give a little of their own accord.
It has always been my prediction that the yuan would appreciate when it is in China's best interest to do so, and that the Olympics in 2008 might signal a particularly good time for a significant change. With inflation building due to the opening of credit markets, it looks like things are happening right on schedule.
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