The Chinese government is contemplating another increase for interest rates, in an attempt to fight off inflation.

On top of that, the Chinese government has ordered banks to tighten their hold on cash.  Currently Chinese banks are required to hold back 21.5% of their cash. The increase in capital reserves, as it’s sometimes called, is intended to slowdown lending.  Lending is another way to drive up inflation.

However, the Bank of China issued a report that says increasing interest rates, and forcing banks to cut back on lending by increasing their capital reserves, is not having any immediate affect on inflation.  That’s because Chinese banks went on a huge lending spree, which flooded the economy with so much money that it will take some time before inflation is brought under control.

In a previous report, it was estimated by a Chinese government audit, that local governments (just local governments) are now in debt by $1.65 trillion.