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Asian shares sluggish amid China rate hike worries

Asian stock markets pressured by China interest rate hike worries, strong yen 

 Midday IndicesT

December 7, 2010, 9.33 am (Singapore time)

China may raise interest rates this weekend

* Says Nov CPI to show rise in inflationary pressure
* Says rate hike part of new 'prudent' monetary policy

BEIJING - China 's central bank may raise interest rates this weekend to enshrine its shift to a 'prudent' monetary policy in the face of rising inflation, an official newspaper reported on Tuesday.

In a banner headline across its front page, the China Securities Journal said that this weekend offered a 'sensitive window' for a rate rise, which would be the country's second in its current tightening cycle.

The newspaper said the timing was right for such a move with official monthly economic indicators, notably the consumer price index (CPI), likely to show an increase in inflationary pressure when released on Monday, Dec 13.

'With reference to the central bank's record of raising interest rates just ahead of the release of CPI, this weekend will provide a window for a possible policy change,' the newspaper said, without citing any source.

China's CPI in November may have risen to a 27-month high of 4.7 per cent from a year ago, according to a Reuters poll, up from a 4.4 per cent pace in October.

The China Securities Journal has a fairly good track record in predicting policy moves. It reported on Nov 17 that the central bank would raise interest rates two days later. On the predicted date, it announced an increase in banks' required reserves, not interest rates.

And on Feb 12, the newspaper reported that the central bank would increase reserve requirements, which it duly did just hours after the report was published.

The central bank also has something of a history of announcing policy moves around the time of the release of monthly data. In October, the central bank announced a rate rise two days before monthly economic indicators were released.

The newspaper added that the expected interest rate increase would form part of China 's new monetary policy stance.

The country's top leadership said last week that Beijing was switching to a 'prudent' monetary policy instead of its earlier 'moderately loose' stance, paving the way for future monetary policy tightening. -- REUTERS