Thanks to Mark DeWeaver for sending the following article to CDT:
This month China’s central bank, the People’s Bank of China (PBOC), has taken several new steps to rein in rising money supply growth.
These measures are likely to lower money supply growth in the short term, but will be counterproductive in the long term. The initial decline in the supply of loanable funds can only push up market interest rates, thereby encouraging the foreign exchange inflows that are the root cause of China’s excess liquidity problem.
The reserve rate increase was actually something that many had been expecting two months ago in place of the much weaker 0.27 percentage point increase in the benchmark lending rate announced on April 27. But the move comes as a bit of asurprise at this time. [Full Text(PDF file)]
For more stories about China’s monetary policy, see China moves to fend off economic overheating
Also by Mark A. DeWeaver A poor way to slow China’s red-hot economy
