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To: Giordano Bruno who wrote (351491)	12/20/2007 9:23:14 AM
From: ldo79	Read Replies (1) \| Respond to of 436258

China Raises Rates to Nine-Year High on Inflation (Update2) By Nipa Piboontanasawat and Li Yanping Dec. 20 (Bloomberg) -- China raised interest rates for the sixth time this year to cool the economy after inflation accelerated at the quickest pace since 1996. The benchmark one-year lending rate will increase by 0.18 percentage point to a nine-year high of 7.47 percent, starting tomorrow, the People's Bank of China said today on its Web site. The one-year deposit rate will rise by 0.27 percentage point to 4.14 percent. Consumer prices rose 6.9 percent in November, property prices climbed at the fastest pace in two years and the main stock index has more than doubled in 2007. Higher borrowing costs and 10 increases in banks' reserve requirements have failed to stem the gains, underscoring concern the economy may overheat. ``Inflation expectations are rising and the central bank really needs aggressive action to cool them,'' said Stephen Green, senior economist at Standard Chartered Bank Plc in Shanghai. ``They will get even more aggressive from now on.'' The yen briefly rose against the dollar after the announcement on speculation higher rates in China will spur gains in Asian currencies. It traded little changed at 113.24 to the U.S. currency at 11:40 a.m. London time. It's the third time this year that China has raised deposit rates by more than lending rates, encouraging people to save instead of speculate on property or stocks in an attempt to curb asset-price gains. Inflation, Overheating Higher interest rates add pressure for China's yuan to rise by making the currency more attractive as central banks in the U.S., Europe and elsewhere cut or hold borrowing costs because of credit-market turmoil and the U.S. housing recession. Japan today kept its benchmark rate unchanged. The central bank said it wants to curb inflation and overheating and implement the ``tightened'' monetary policy announced this month. China had already raised the proportion of deposits that lenders must set aside as reserves by the most in four years, effective Dec. 25, and ordered banks to cool lending this quarter. Today's rate increase ``won't be enough'' as inflation cuts real returns on deposits, said Huang Yiping, chief Asia economist of Citigroup Inc. in Hong Kong. Consumer prices jumped in November on fuel and food costs. Households' concern about inflation is at the highest level since a survey began in 1999, the central bank said today. `Asset Bubbles' The yuan closed at 7.3694 versus the dollar before the rate announcement. It has gained more than 12 percent against the U.S. currency since the end of a peg in July 2005. The CSI 300 Index of stocks climbed 1.8 percent today. China should let its currency appreciate, given ``mounting inflation, growing asset bubbles and possible overheating,'' U.S. Treasury Secretary Henry Paulson said this month. China may not raise rates next year to avoid encouraging inflows of speculative capital, said Liang Hong, a senior economist at Goldman Sachs Group Inc. in Hong Kong. JPMorgan Chase & Co. and Citigroup Inc. expect as many as three increases. A stronger currency would help cool inflation by lowering import costs and slowing the inflow of money from exports. The trade surplus surged 52 percent in the 11 months through November to $238.1 billion. The central bank cut the demand deposit rate today by 9 basis points, the first reduction since February 2002, to encourage people to shift their money into fixed-term savings, which are less accessible for stock-market investment. It raised the six-month and three-month deposit rates by 36 and 45 basis points respectively. House Prices China's economy, the world's fourth largest, expanded 11.5 percent in the third quarter from a year earlier. House prices in 70 major cities jumped 10.5 percent in November from a year earlier. The CSI 300 Index has climbed 147 percent this year. China's growth is likely to slow to 10.5 percent in 2008 from 11.4 percent this year on tightening measures, the Asian Development Bank said this month. The Organization for Economic Co-operation and Development forecasts a decline to a 10.7 percent pace on reduced demand for exports.