China hikes rates to tame inflation
Wednesday, August 22, 2007
CHINA'S central bank announced yesterday it would raise interest rates for the fourth time this year in an effort to curb inflation that last month climbed to its highest level in over a decade.
The benchmark lending rate will rise by 0.18 percentage points and the benchmark deposit rate will go up by 0.27 percentage points today, the People's Bank of China said in a statement on its website.
China's main bank lending rate will now be 7.02 per cent, while the deposit rate jumps to 3.60 per cent.
The decision was made "in order to reasonably adjust money and loan supply as well as stabilise inflation expectations," the statement said.
Economists had predicted that authorities would act quickly after data was released last week showing that China's economy was continuing to race ahead at a worryingly fast pace.
The biggest concern for the government was inflation hitting 5.6 per cent in July from a year earlier, the highest rate in more than a decade.
Inflation was driven mainly by a sharp 15.4-per cent spike in food prices, with the price of meat rising 45.2 per cent.
"The rate hike is within our expectations," said Qing Wang, China economist at Morgan Stanley.
"The main purpose is to amend inflationary expectations it should not be viewed as authorised monetary tightening, but instead, it should be viewed as a passive reaction to inflation."
Wang said he was expecting one more interest rate raise in the short term.
"To manage inflationary expectations, you need to maintain a tightening bias," he said.
Even before the official inflation data was announced last week, government officials were already voicing their worries of an overheating economy.
"Various economic indicators are on the rise, and they may enter into the alarm zone," Zhang Tao, vice director of the central bank's international department, was quoted by a state newspaper as saying.
"The objective now is to prevent the economy shifting from fast growth to overheating," Zhang said.
China also last month posted a trade surplus of US$24.4 billion, the second-largest ever.
China has already tried a wide range of measures to control the economy, which expanded at 11.9 per cent in the second quarter and 11.5 per cent during the first half.
Interest rates had already been raised three times this year, most recently on July 21.
The bank reserve ratio the amount of money banks must hold in reserve has also been increased six times to stem liquidity.
In addition, the government has placed various curbs on exports.AFP
The benchmark lending rate will rise by 0.18 percentage points and the benchmark deposit rate will go up by 0.27 percentage points today, the People's Bank of China said in a statement on its website.
China's main bank lending rate will now be 7.02 per cent, while the deposit rate jumps to 3.60 per cent.
The decision was made "in order to reasonably adjust money and loan supply as well as stabilise inflation expectations," the statement said.
Economists had predicted that authorities would act quickly after data was released last week showing that China's economy was continuing to race ahead at a worryingly fast pace.
The biggest concern for the government was inflation hitting 5.6 per cent in July from a year earlier, the highest rate in more than a decade.
Inflation was driven mainly by a sharp 15.4-per cent spike in food prices, with the price of meat rising 45.2 per cent.
"The rate hike is within our expectations," said Qing Wang, China economist at Morgan Stanley.
"The main purpose is to amend inflationary expectations it should not be viewed as authorised monetary tightening, but instead, it should be viewed as a passive reaction to inflation."
Wang said he was expecting one more interest rate raise in the short term.
"To manage inflationary expectations, you need to maintain a tightening bias," he said.
Even before the official inflation data was announced last week, government officials were already voicing their worries of an overheating economy.
"Various economic indicators are on the rise, and they may enter into the alarm zone," Zhang Tao, vice director of the central bank's international department, was quoted by a state newspaper as saying.
"The objective now is to prevent the economy shifting from fast growth to overheating," Zhang said.
China also last month posted a trade surplus of US$24.4 billion, the second-largest ever.
China has already tried a wide range of measures to control the economy, which expanded at 11.9 per cent in the second quarter and 11.5 per cent during the first half.
Interest rates had already been raised three times this year, most recently on July 21.
The bank reserve ratio the amount of money banks must hold in reserve has also been increased six times to stem liquidity.
In addition, the government has placed various curbs on exports.AFP
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