Inflation in China and India accelerated last month, prompting Beijing to lift bank reserve requirements yesterday and keeping pressure on India to raise interest rates later this week even as Asia’s two big growth engines show signs of slowing and recovery stalls elsewhere.
China’s consumer price inflation hit a 34-month high of 5.5 percent, keeping fighting inflation at the top of the agenda for Beijing, which sees little chance of the current slowdown from last year’s 10 percent-plus growth turning into a hard landing.
In India, wholesale price index inflation was well above forecasts at 9.06 percent, with a sharp rise in manufacturing inflation from the previous month offsetting a slowdown in the rise of food and fuel prices in Asia’s third-largest economy, adding to the likelihood of a rate increase tomorrow.
Fast-growing economies face the potentially tricky task of managing rising inflation even as growth cools from last year’s scorching levels and the US recovery shows signs of losing steam, while Europe and Japan struggle.
Hours after the China inflation report, while many Asian financial markets were still trading, the Chinese central bank raised bank reserve requirements by 50 basis points to a record 21.5 percent, its sixth move this year, catching investors by surprise.
In past months, the People’s Bank of China has often announced policy tightening measures when Asian markets were closed, on holidays or long weekends.
The raft of Chinese data released yesterday suggested the world’s second-biggest economy was slowing, but not too quickly, leaving room for Beijing to focus on fighting inflation, analysts said.
By forcing banks to lock up cash which they would otherwise have loaned out, Beijing hopes it can drain excess money from its financial system and reduce inflationary pressures.
“We see more tightening going forward. We expect them to raise rates again, before going on hold in the third quarter,” said Allan Von Mehren, chief analyst at Danske Bank in Copenhagen.
“Today’s inflation data was in line with what we had expected, but it was pushed up by high food prices and we pretty much know that because of the base effect inflation will come down as we get into 2012,” he added.
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