China expected to speed up monetary tightening

Hong Kong, Feb 8 (Yonhap) China will likely speed uptightening of its monetary policy this month as inflationaryrisks in the country build up further following the Lunar NewYear''s holiday, analysts predicted today.

The forecast comes as China''s inflation is estimated tohave grown more than 5 per cent in January because the LunarNew Year''s Day drives up seasonal demand for consumer productsin the country.

Juhn Jong-kyu, an analyst at Samsung Securities Co, saidthe Chinese authorities may raise the country''s benchmarkinterest rate after the six-day holiday, which ends today, ina bid to send a strong message to the overheated markets.

Prices of vegetables in China''s two largest cities,Beijing and Shanghai, rose 16.8 per cent on-year ahead of theLunar New Year''s Day with the cost of pork soaring 39.7per cent, he estimated.

"Prices of agricultural products soared higher comparedto previous years due to rising costs in labor and fertilisersas well as to unusual drought in the northeastern region,"Juhn said.

Sung Yeon-ju, a China analyst for Daeshin Securities,also forecast there is a great possibility that the Chinesecentral bank will raise interest rates.

"As January economic indicators such as consumer priceindex and growth of new loans are due next week, China islikely to gear further into a tight grip," she said.

Sung said concerns are growing about excessive liquidityin the market, with new loans drawn from banks from Jan. 1-24reaching 1.2 trillion yuan (USD 182.3 billion).

In 2010, China''s new lending amounted to 7.95 trillionyuan, exceeding the government''s target of 7.5 trillion yuan.

As this year''s target is set at around 7.2 trillion yuan, thenew loans in January may already have reached 17 to 18 percent of the target for full 2011.

In the last week of January, some major commercial banksin China were unofficially ordered to hike their lending ratesby 10 per cent to as much as 45 per cent in order to notexceed the lending quota set by the Chinese central bank.

Soaring consumer prices have been a major macroeconomicissue for Chinese leaders as the country faces high inflationrisks amid rapid economic growth.

Since late October, China has adjusted banks'' reserveratios four times and raised interest rates twice as theworld''s second-largest economy grapples with surginginflation. (Yonhap)