China Tells

There are a few signs recently that suggests that China government might consider tightening the money supply. These signs include: 1) Price Recovery is happening; 2) Export growth is recovering; 3) An export growth plus a price recovery potentially points to inflation. The central bank is particularly sensitive to Price Recovery, and normally they will adjust Bank Reserve Ratio first before touching the base rate. PBOC’s announcement today seems to have confirmed the above logic (See Article from Bloomberg). I believe  through such an increase of 50 basis point, the government  is trying to send a message to the market that they are aware of the price increase and would take serious actions against potential threat of inflation, before it becomes out of control. Also a by-product of such message is to give a warning to the rampant property market.

中国央行今天宣布提高准备金率0.5%。这个和最近市场所观察到的价格回升有密切关系。12月份的消费者物价指数和生产者物价指数双双以正幅度上升，本人估计这样的数据让政府提高了警惕。央行今天的举动就是要告诉大家，任何通货膨胀的可能都会被扼杀在襁褓之中，无论最后实现的可能性有多小。