China Raises Key Interest Rates to Counter Inflation
By Bloomberg News - Feb 8, 2011
China raised key interest rates for the third time since mid-October after growth accelerated and inflation stayed above 4 percent for a third month.
The benchmark one-year lending rate will increase to 6.06 percent from 5.81 percent, effective tomorrow, the People’s Bank of China said on its website today. The one-year deposit rate will rise to 3 percent from 2.75 percent.
A jump in lending at the start of this year may have exacerbated price pressures by adding to an excess of cash in the fastest-growing major economy. Inflation may have climbed to as much as 6 percent in January after snowstorms damaged crops and as demand climbed ahead of a Lunar New Year holiday, according to Daiwa Capital Markets.
“The government wants to front-load tightening to control lending,” Chang Jian, a Hong Kong-based economist at Barclays Capital, said before today’s announcement. “The rate hike is needed to anchor inflation expectations and to control inflation and asset-bubble risks.”
Consumer prices rose 4.6 percent in December and the economy expanded 9.8 percent in the fourth quarter, faster than the pace in the previous three months. Deutsche Bank AG said last month that inflation may average 5 percent for the full year, while UBS AG saw a 4.8 percent rate. November’s 5.1 percent rate was the fastest in 28 months.
Inflation Campaign
Besides increases in rates and banks’ reserve requirements, the government’s campaign against inflation spans sales of state food reserves, subsidies for low income earners, threatened price controls and crackdowns on speculation and hoarding.
The government aims to hold full-year inflation at 4 percent, state broadcaster CCTV reported in December.
China’s foreign-exchange reserves, the world’s biggest, climbed by a record $199 billion in the fourth quarter to $2.85 trillion, and banks extended 7.95 trillion yuan of new loans last year, exceeding the government’s targeted maximum of 7.5 trillion yuan.
Companies from Baoshan Iron & Steel Co. to Starbucks Corp. and McDonald’s Corp. have raised prices and Chinese consumers are more concerned about inflation than at any time in the past decade, according to a central bank survey released in December.
--Li Yanping, Kevin Hamlin, Marco Lui. Editors: Paul Panckhurst,
To contact the Bloomberg News staff on this story: Li Yanping in Beijing at yli16@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net |
