China Raises Rates Again

China tries traditional means to tighten monetary policies for the umpteenth time by raising interest rates again, having recently raised reserve requirements.

But as I've pointed out repeatedly on this blog, that will only have limited success in adressing the problem of too high monetary growth and to the extent it works it will aggrevate the excessive current account surplus.

The only real effective solution to both problems would be to significantly revalue the yuan. And while in recent weeks, the rate of yuan appreciation has again accelerated, with the yuan rising 1% in three weeks, this follows more than seven weeks where it was basically unchanged against the dollar. It must rise a lot faster than 1% in ten weeks against the dollar to have any meaningful effect, especially considering how the dollar is falling against most other currencies.