At last, China has moved beyond the pea-shooters. Three increases to banks’ reserve requirement ratios since the beginning of the year had little obvious effect on prices; the inflation rate in August was 3.5 per cent, the fastest pace in 22 months. Bigger guns have now been deployed. For the first time since December 2007, the People’s Bank has increased the benchmark one-year deposit and lending rates by 0.25 percentage points, to 2.5 and 5.56 per cent respectively.

Not before time. Banks have been lending more than expected; September’s Rmb596bn in new loans was ahead of consensus forecasts of Rmb500bn. The lending has helped push up asset prices, particularly property; the nationwide index is 9.1 per cent rate higher than a year ago. Meanwhile, higher deposit rates may make savers less willing to rely on instant-access deposits, from which the funds often go into more speculative investments. These deposits grew by 39 per cent between January 2009 and September this year, almost double the growth rate of more sober time deposits.

Another way to fight inflation is through currency appreciation, but, as Royal Bank of Scotland notes, the People’s Bank typically avoids tightening through multiple policy instruments simultaneously. Most market participants, though, consider the appreciation so far, 2.6 per cent nominal against the dollar since the end of June, to be inadequate. The pace of strengthening implied by Hong Kong’s non-deliverable forward market is near a two-year high, while the offshore renminbi premium over the onshore market has never been wider. If the heavier armory implies that the exchange rate will be left alone for now, China may cool passions at home but inflame them overseas.