China’s inflation reached a 16-month high, industrial output climbed and new loans exceeded forecasts, adding to the case for the government to pare back stimulus measures.
Consumer prices rose 2.7 per cent in February from a year earlier, the National Bureau of Statistics said in Beijing today, compared with the 2.5 per cent median estimate of 29 economists surveyed by Bloomberg News. Seasonal factors stemming from a weeklong holiday may have boosted prices. Production rose 20.7 per cent in the first two months of 2010, the most in more than five years.
Premier Wen Jiabao aims to hold full-year inflation around 3 per cent after banks flooded the financial system with money to drive a rebound from the global recession. Gross domestic product grew 10.7 per cent last quarter and central bank Governor Zhou Xiaochuan said March 6 that anti-crisis policies, including the yuan’s peg to the dollar, must end “sooner or later.”
“Inflation may top the 3 per cent policy target by April, which is bound to trigger further monetary tightening,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd in Hong Kong. He sees benchmark interest rates increasing as early as this month.
Stocks across the region dropped, a reflection of the sensitivity of economic expansions from Australia to South Korea to any possible tightening and slowdown in China, the world’s fastest-growing major economy. The MSCI Asia Pacific Index later rebounded on speculation that Japan’s economy is recovering.
Australia’s S&P/ASX 200 Index closed down 0.1 per cent and the Kospi index fell 0.3 per cent. The Shanghai Composite Index swung between gains and losses before closing 0.1 per cent higher.
Non-deliverable yuan forwards rose for a sixth day, climbing 0.1 per cent to 6.6338 per dollar, indicating that traders expect the currency to rise 2.9 per cent within 12 months.
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Banks extended 700 billion yuan ($103 billion) of new loans in February, central bank data showed today. That compared with 1.39 trillion yuan in the previous month and 1.07 trillion yuan a year earlier. The median estimate was 600 billion yuan.
M2, a measure of money supply, rose 25.5 per cent, compared with a 26 per cent gain in January. The government targets 17 per cent M2 growth for this year.
Retail sales rose 17.9 per cent in the first two months from a year earlier, and urban fixed- asset investment gained 26.6 per cent. Retail sales grew 22.1 per cent in February, the bureau said.