The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
March 18, 2007
Inflation Chickens Roosting In China?
The People's Bank of China, the central bank, raised key savings and lending interest rates from Sunday, March 18, the third time in 11 months in a bid to curb inflation and asset bubbles in the world's fastest-growing major economy.
The one-year benchmark lending rate will be raised to 6.39 percent from 6.12 percent, and the one-year deposit rate will be increased to 2.79 percent from 2.52 percent, according to a statement on the bank's website (www.pbc.gov.cn) .
Time to start up the yuan appreciation clock? From the Wall Street Journal:
After Saturday's credit tightening, [Goldman Sachs Group Inc. economist Hong Liang] said, she expects authorities in China to continue efforts to pull liquidity from the financial system with technical measures, possibly another interest rate increase and steady appreciation of its currency against the U.S. dollar...
Many economists regard China's tight grip on the value of its yuan as an underlying reason for Beijing's concern about financial system stability. A weak currency helps keep exports cheap and China's strong export growth has pumped U.S. dollars into the country, as evidenced by foreign exchange reserves that top $1 trillion. When that money is moved into yuan, banks are left flush with funds to lend out. Too much lending risks sparking inflation or leaving banks holding bad loans.
The Chinese government, however, continues to suggest that we should not expect too much too fast. From the Financial Times:
China on Friday sought to reassure global currency markets that a new state investment agency set up to chase higher returns for its $1,000bn-plus in foreign exchanges reserves would not harm the value of the US dollar.
Wen Jiabao, premier, said at a press conference to close the National People’s Congress that investments by the agency “would not have any impact on US dollar-denominated assets”.
Mr Wen’s comments were reinforced by the People’s Bank of China, the central Bank, which said in a report issued hours later that it would not make “frequent, major adjustments to the structure of the reserves in response to market movements”...
Mr Wen’s reassurance on the US dollar is also in China’s self-interest, since any dollar sell-off would leave huge capital losses for Beijing’s existing holdings.
Are an unadjusted yuan, still-strict capital controls, and low inflation compatible goals? Normally one would would think not, but we shouldn't forget this (again from the Wall Street Journal):
China only reluctantly adjusts base interest rates. Analysts say that reflects how interest rates have less impact on lending and borrowing decisions in China than they do in countries with more highly developed financial systems. Instead, to temper lending and the economy, China's central bank more often relies on moral suasion with state-controlled banks and technical adjustments to capital requirements.
So, the answer is probably "Sure, if the government is willing to institute even tighter controls on the allocation of financial resources." I doubt, however, that many would be inclined to advise taking that path.
TrackBack URL for this entry:
Listed below are links to blogs that reference Inflation Chickens Roosting In China?:
- Sales Flexing Muscle at More Firms
- All Eyes on the Consumer
- Signs of Strengthening Wage Growth?
- What the Weather Wrought
- Déjà Vu All Over Again
- Is Measurement Error a Likely Explanation for the Lack of Productivity Growth in 2014?
- What Seems to Be Holding Back Labor Productivity Growth, and Why It Matters
- Signs of Improvement in Prime-Age Labor Force Participation
- Could Reduced Drilling Also Reduce GDP Growth?
- Are Shifts in Industry Composition Holding Back Wage Growth?
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit