Forex China – High inflation persists

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The Chinese head of government Wen Jiabao stated today that inflation must meet the target of 4%, before causing further problems to the country’s growth. Last month the inflation rate climbed to a thirty-four month high of 5.5%, the expectations are for even higher rates in the following months. The price pressures are surging in the second largest economy of the world during the last one and a half year creating concerns for the economic stability and sustainability of China, despite the continuous rate hikes from the central bank of China, which appear to be ineffective so far. However Jiabao signalled more rise in the interest rates soon combined with other tightening and restrictive measures. Investors are concerned about China’s growth path, as a possible slowdown will affect negatively world growth in a high degree. Last year China grew by 10.3%, while in the first quarter of the present year the growth rate has slipped by 0.6%. The next half of the year will be crucial for the Chinese economy as the markets will be waiting for results from the tight monetary policy, note that the Bank of China has raised the required reserve ratio for the banks to 21.5%, a record high rate. Chinese government delegates and bankers have set the curbing of price pressures as a top priority and they are positive that they will manage to bring it down to the Bank’s target.