India Raises Interest Rates, China Tightens Lending

Central Banks around the world are taking decisive action to combat the threat of rising inflation.  The Reserve Bank of India raised the over night lending rate to 8.0% from 7.75%, two months ahead of its next scheduled monetary policy meeting.  Yesterday, China's Central Bank ordered Chinese Banks to set aside more reserves to curb credit growth, causing a rout in Chinese stocks.  Additionally, the Bank of Canada unexpectedly failed to lower interest rates, citing inflation fears.  What Central Banks are increasingly growing concerned about is facing a situation similar to what is happening in Vietnam, where inflation has already spiraled out of control.   CPI in Vietnam surged 25.2% in May, due to the global spike in food prices, rice in particular.  The Central Bank has responded by raising interest rates significantly and allowing the currency to devalue.  I'm not quite sure what all the fuss is about.  If Vietnam wanted to solve its problem of rising inflation, it could simply exclude food and energy from its CPI report.  After all, that is what the US policy makers view as the solution to our rising CPI problem.  Although Bernake has recently pulled his head out of the sand to make a speech about inflation, he has yet to pull the trigger on interest rates.  Could it be because he knows that an unexpected increase in rates may put the nail in the coffin of a few too many financial institutions hanging on for dear life, dependent on an agreeable Fed?  Bernake's speech delivered Monday night had a special message for banks, cleverly veiled by indecipherable Fed- Speak:  Get your act together, raise a capital cushion, the bailout party is over, rates are going higher!