UPDATE 1-China announces shift to "prudent" monetary policy

* Policy shift announced by Politburo marks turning point

* Analysts say emphasis of policy could shift to rate rises

BEIJING, Dec 3 (BestGrowthStock) – China will switch to a prudent
monetary policy from a moderately loose stance, the Communist
Party’s top leaders decided on Friday, a change that could pave
the way for more interest rate increases and lending controls,
the state Xinhua news agency reported on Friday.

At the same time, the Politburo elected to maintain China’s
proactive fiscal policy, an indication that the government wants
to continue to ramp up investment spending at the same time as
taking tightening steps to control inflation.

The change in description of monetary policy had been
discussed for several weeks by advisers to the central bank, but
the Politburo’s endorsement marks a decisive turning point in
Chinese policy.

“It means that all sort of monetary policy tools to control
liquidity and to control inflation can now be used,” said Ken
Peng, an economist with Citigroup in Beijing.

“In the past we’ve been clearly focusing on administrative
measures. Going forward we could be using more price adjustments
via interest rates,” he said, adding that he expected five rate
increases by the end of next year.

China has raised interest rates just once this year as it has
guided its monetary policy back to normal from the ultra-loose
settings it adopted to counter the global financial crisis.

“China has no need now to worry about overall demand at all,”
said Dong Xian’an, chief economist with Industrial Securities in
Beijing. “Instead, the top priority is to curb inflation and
avoid economic overheating.”

“The sooner China acts and the more forceful measures it
takes, the better,” he said.

Consumer price inflation hit a 25-month high in October,
rising 4.4 percent from a year earlier, and is expected to have
edged higher in November. Although it has been driven almost
exclusively by food prices, price pressures have been broadening
on the back of higher global commodity costs.
(Reporting by Zhou Xin, Simon Rabinovitch and Langi Chiang;
Editing by Don Durfee and Chris Lewis)

UPDATE 1-China announces shift to "prudent" monetary policy