More rate hikes in pipeline
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The United States Federal Reserve's new round of quantitative easing will drive capital to China and other Asian countries, but China needs to raise interest rates to tighten its monetary policy to tame inflation, economists said Thursday.
The Fed will buy an additional US$600 billion of Treasuries through June in an expansion of a record stimulus. The Federal Open Market Committee kept its benchmark interest rate for overnight inter-bank loans at zero to 0.25 percent, where it has been since December 2008.
The near-zero US interest rates and forecast of a weak US dollar are expected to push liquidity toward countries in the Asia-Pacific. The countries, including China, Singapore, India, Malaysia, South Korea, Vietnam and Australia, have already raised interest rates and increased the interest spread between Asian currencies and the greenback.
China is seen to raise its interest rates once more this year and more rate hikes are likely in 2011 as inflation becomes a priority in monetary policy, economists said yesterday.
"The priority of the People's Bank of China is to curb inflation," said Lu Zhengwei, an Industrial Bank senior economist in Shanghai. "Economic growth concerns faded out and a de facto tightening is to come."
Lu said he expects three to four more interest rate increases through next year, each 25 basis points, or 0.25 percentage points.
China surprisingly raised its interest rates on October 20, the first hike in nearly three years to mop up liquidity amid a nearly two-year high inflation of 3.6 percent in September.
The World Bank said on Wednesday that China still needs to further increase interest rates.
