Sunday, January 24, 2010
China acts to avert overheating
This article is the follow up on the China's move to tighten the money supply. The world's third largest economy is concerned about the overheating of the economy which might result in an inflation. China is manily concerned about the ease of getting loans and that's why it's move to decrease the money supply might relax the threat of inflation to some extent. But inflation is correlated with China's growth. And the more China expect to grow in 2010 the more it's vulnerable to the threat of inflation. Hope this article gives the reader some idea about what's going on with Chinese economy these days.
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If China's inflation rate was: "8.7 percent in 2009 and 10.7 percent in the fourth quarter," that is an incredible climb. I think it's very smart that China will be raising it's interest rates to control inflation rates. Though it's understandable that the country is growing, it was said that this is: "the fastest quarterly growth rate in two years and the biggest rise in inflation in 13 months." China is taking charge to stabilize their economy.
ReplyDeleteChina's economy is growing at a phonemail rate, while other countries (like the U.S.) are going through a recession. It is understandable that China wants their economy to stabilize instead of overheating. I think they are capable of doing this because China controls a fair amount of the money supply.
ReplyDeleteI think its a wise decision by China as they do not want their economic growth to be affected by inflation. This is because once the inflation rate starts increasing, it can go on increasing for a long time which can be hard to control and damaging to the economy. Hence its better to keep inflation rates stable from the beginning.
ReplyDeleteOnce a economy gets inflation, it's hard to get rid of it for a long period of time. So it is a wise choice that the China's central bank, The People's Bank of China, increases the interest rate to tighten the money supply. Once real interest rate increases, investment decreases and people tend to save more than consume.
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