Last week’s increase in the required reserve ratio for commercial banks was a strong signal that the ultra-loose monetary policy of 2009 is being reversed. Increases to administered interest rates are likely to follow. However, the level of interest rates will remain low. With the economy growing at more than 10% in nominal terms and the 12m lending rate at just 5.31%, it would take more than this year’s expected two or three 27bp hikes to put a dent in loan demand. Far more important will be the quantity of credit available, which the government will signal through its target for new loans. Despite the tougher rhetoric on inflation, policymakers still seem too uncertain about the sustainability of recovery to want a dramatic slowdown in the credit flow. We expect 20% loan growth this year, lower than in 2009 but still the third strongest on record.