China increased its benchmark interest rates last week for the second time in two months. While expecting similar moves to come in the near future, economists from major international investment banks do not seem to be worried about the impact of China's increasingly tight monetary policy on economic growth.

Wang Qian, chief economist at JP Morgan Chase, has decided to keep her forecast of China's GDP growth at 9 percent in 2011, arguing that the latest interest rate hike would have little impact on China's growth momentum.

As China has revised its 2011 inflation target to 4 percent from 3 percent, analysis shows that the targets for the broad measure of money supply (M2) and new loans are likely to fall into the maximum territory of what the market has expected.

"Those measures have just strengthened our view that a steady economic growth is still what the Chinese government wants and, in that case, we don't think tightening would go too far," Wang said.

Both Wang Qian and Wang Qing, chief economist of Morgan Stanley for Greater China, agreed that the interest rate hikes at the end of 2010 are "pre-emptive" and effective actions to curb a possible credit surge in January 2011.

Looking into the future, international investment banks believe that more tightening measures are anticipated. The latest report from Goldman Sachs pointed to high inflationary pressure in the short-term due to the bad weather and rising fiscal expenditures. Both Wang Qian and Nomura Securities estimated a Consumer Price Index (CPI) growth higher than 4 percent in 2011 set by the National Development and Reform Commission.

China's CPI hit a 28-month high of 5.1 percent in November. The record 153 billion U.S. dollars in exports seen in November signifies not only a full recovery of China's foreign trade but also the flow of more money into the economy, which will put more pressure on the already excessive liquidity.

Wang Qian sees the possibility of a mixture of various tools, including control of foreign capital inflow, further increases in commercial banks' deposit-reverse requirements, central bank intervention in liquidity hedging and fewer credit grants鈥?particularly in the property market.

Wang Qing thinks that the Chinese government will show more flexibility in managing the total quantity of money rather than set any specific amount of credit in 2011. He predicts a 15 percent growth would be set for the M2.

Peng Cheng, economist at Citigroup, predicts interest rate hikes totaling 100 base points in 2011. Tomo Kinoshita, deputy head of economics for the Asian region (excluding Japan) at Nomura International, thinks China's central bank will make more increases in deposit interest rates to narrow the currently big interest spread between deposits and loans.

Although 0.25 percentage points of increases have been implemented on both the one-year deposits and loans, Wang Qing pointed out that interest rates for other terms of deposits have actually increased by 0.3 to 0.35 percentage points.

By Li Jia, People鈥檚 Daily Online