The central bank battled inflation for much of last year. It fired its first shot of 2008 by raising banks’ reserve requirement ratio by half a percentage point, taking it to 15%, a record high. It was the 11th hike in the ratio since the start of last year.
The National Development and Reform Commission (NDRC) is also getting in on the anti-inflation act. It took the unprecedented step of imposing direct price controls on large food producers – eggs, dairy products, pork (all of which are key contributors to inflation) – on January 16.
Producers must get government approval before raising prices. The NDRC took pains to say it wasn’t a price freeze – unlike the halt on energy price hikes announced a week earlier. Oil products, natural gas and electricity will see no price hikes in the short term.
Another weapon Beijing has used to combat inflation is currency appreciation. The yuan rose 70 basis points against the US dollar in the first half of January, hitting record highs.
The NDRC expects the consumer price index to increase 4.6% this year, following a suspected rise of about 5% in 2007.
The official GDP growth target for 2008 is 8%, well down on the 11%-plus of last year. The World Bank forecasts 10.8%, with China’s growth likely to help offset a US slowdown.