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I heard not long ago that because of inflation rising up in China, the China Bank will rise its interest rate of 0.25%. I am quite new to the financial world and do not really understand how this is linked.

My understanding:

The rise of interest rates will make money more expensive inducing less loan to be contracted by individuals. Because of that, price won't continue to rise.

My understanding is very basic, can someone help ?

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Dear Luc, this is a bit too basic for this site. Take a look at the Wikipedia articles on monetary policy and inflation targeting. – olaker♦ Apr 23 '11 at 14:30
Luc, It's not a good idea to apply typical economic rules to China. Why? They're a Communist country. Normal free-market relationships don't hold. For example, under non-communist conditions, China's inflation rate would be much higher than it is due to all of the money coming into their country. But, because part of that money is diverted by the Chinese government to the U.S. and other countries to buy bonds/assets, it doesn't get the chance to push up prices. The bottom line is, to learn about consistent economic rules, stick to free-market based countries. – bill_080 Apr 23 '11 at 15:52
Here's a current link that might help explain the situation better. bankcreditanalyst.com/public/story.asp?pre=PRE-20110503.GIF – bill_080 May 4 '11 at 17:50
@bill_080 thanks for your help, that is great. – Luc May 10 '11 at 13:55

closed as off topic by Joshua Chance, Joshua Ulrich, olaker♦ Apr 23 '11 at 14:30

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