Pre-emptive tightening

The elbow-room for Chinese monetary authorities to tame looming inflation has considerably decreased as other major central banks are stepping up quantitative easing to prevent a double dip.

It is obvious that any hike in interest rates will encourage a faster inflow of foreign capital into China, complicating efforts to control excess liquidity growth.

However, the latest decision by the People's Bank of China to immediately raise reserve requirements for six large commercial banks on a temporary basis shows that Chinese policymakers are more resolved than expected in fighting inflation.