China raises interest rates to fight inflation
By Zhang Fengming |
December 26, 2010, Sunday
|
Print Edition
Print Edition
CHINA yesterday raised interest rates, the second increase in more than two months, to tame inflation and curb asset price bubbles.
From today, the one-year benchmark deposit rate will rise to 2.75 percent from 2.5 percent while the one-year benchmark lending rate will increase by the same 25 basis points to 5.81 percent, the People's Bank of China said on its website yesterday.
With the exception of the current deposits rate, which is unchanged at 0.36 percent, rates on deposits and loans of other maturity all rise.
"The rate increase is well expected," said Lu Zhengwei, an Industrial Bank senior economist. "Inflation is its target."
China's consumer price index, the main gauge of inflation, rose 5.1 percent in November, a 28-month high. Food prices jumped 11.7 percent in December, also the highest since July 2008.
Chinese consumers are feeling the biggest pinch of rising living costs in a decade, a central bank survey showed earlier this month, indicating the pressure on policy-makers to tame inflation.
The consumer's price satisfaction index fell to 13.8 percent this quarter, the lowest since data was first compiled in the fourth quarter of 1999, according to the central bank survey.
Inflation is the key word in China's economic work in 2011.
"The key risk for the time being is inflation," said Qu Hongbin, chief economist of HSBC in China. "And China should focus on curbing inflation in the coming months."
Qu said he expects more increases in interest rates and reserve requirement.
The view is widely echoed in the market.
"Quantitative tightening on inflation has limited effects," said Liu Ligang, an ANZ economist. "Raising interest rates is still the most effective way to counter inflation."
China has raised its reserve requirement on banks six times this year, including three times since November, to control liquidity.
China has shifted its monetary policy from "relatively loose" to "prudent" for 2011 to play a delicate balance between growth and inflation.
At the annual Central Economic Work Conference earlier this month, China's top leaders set the economic policies for the first year of the 12th Five Year Plan. And there were scant worries over growth, but plenty over inflation and the need to counter the US's new round of quantitative easing, or QE2, as the market call it.
The central bank's latest rate increase doesn't come as a surprise against the backdrop. Actually, some economists had already called for an earlier rate increase.
China's last rate increase was made on October 20, a surprising rate rise in almost three years.
China cut its interest rates four times in the last two months of 2008 to counteract the global financial meltdown. The banking rates were untouched in 2009.
From today, the one-year benchmark deposit rate will rise to 2.75 percent from 2.5 percent while the one-year benchmark lending rate will increase by the same 25 basis points to 5.81 percent, the People's Bank of China said on its website yesterday.
With the exception of the current deposits rate, which is unchanged at 0.36 percent, rates on deposits and loans of other maturity all rise.
"The rate increase is well expected," said Lu Zhengwei, an Industrial Bank senior economist. "Inflation is its target."
China's consumer price index, the main gauge of inflation, rose 5.1 percent in November, a 28-month high. Food prices jumped 11.7 percent in December, also the highest since July 2008.
Chinese consumers are feeling the biggest pinch of rising living costs in a decade, a central bank survey showed earlier this month, indicating the pressure on policy-makers to tame inflation.
The consumer's price satisfaction index fell to 13.8 percent this quarter, the lowest since data was first compiled in the fourth quarter of 1999, according to the central bank survey.
Inflation is the key word in China's economic work in 2011.
"The key risk for the time being is inflation," said Qu Hongbin, chief economist of HSBC in China. "And China should focus on curbing inflation in the coming months."
Qu said he expects more increases in interest rates and reserve requirement.
The view is widely echoed in the market.
"Quantitative tightening on inflation has limited effects," said Liu Ligang, an ANZ economist. "Raising interest rates is still the most effective way to counter inflation."
China has raised its reserve requirement on banks six times this year, including three times since November, to control liquidity.
China has shifted its monetary policy from "relatively loose" to "prudent" for 2011 to play a delicate balance between growth and inflation.
At the annual Central Economic Work Conference earlier this month, China's top leaders set the economic policies for the first year of the 12th Five Year Plan. And there were scant worries over growth, but plenty over inflation and the need to counter the US's new round of quantitative easing, or QE2, as the market call it.
The central bank's latest rate increase doesn't come as a surprise against the backdrop. Actually, some economists had already called for an earlier rate increase.
China's last rate increase was made on October 20, a surprising rate rise in almost three years.
China cut its interest rates four times in the last two months of 2008 to counteract the global financial meltdown. The banking rates were untouched in 2009.
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