Price pressure seals move
By Wang Yanlin |
October 21, 2010, Thursday
|
Print Edition
Print Edition
CHINA'S "unexpected" interest rate increase, which was effective yesterday, was unavoidable due to rising inflationary pressure, said analysts who predicted that more increases may be necessary to tame prices.
The People's Bank of China, the central bank, on late Tuesday announced the interest rate increases for both deposits and lending by 25 basis points, the first rise in 34 months.
"This is a surprising move for most market participants," said Sun Chi, an economist at Nomura International (Hong Kong) Ltd. "But we have long believed that a rate rise was inevitable this year."
Sun cited two reasons for his view. Firstly, real deposit interest rates have been in negative territory for about half a year, and this poses a risk of higher inflation expectations. Secondly, the benchmark lending rate has stayed at a historically low level even though the economy has recovered significantly from the bottom in the first quarter of 2009.
China's consumer prices have become a source of worry for policy makers since the beginning of this year. They have been above the benchmark one-year deposit rate since February and there is no sign of an immediate retreat. The Chinese Academy of Social Sciences even suggested China should revise its annual inflation target to 4 percent for the whole year from 3 percent to reflect the price increases.
The Consumer Price Index, a main gauge of inflation, grew at the fastest pace in 22 months in August at 3.5 percent. It was still much higher than the adjusted one-year deposit rate of 2.5 percent.
Analysts generally expected the September figure, due to be released today, to surge to a two-year high of up to 3.9 percent.
Sun Lijian, an economics professor at Fudan University, also said quantitative measures, such as the increase in reserve requirement, can no longer effectively check the inflating bubble in prices and in the housing market.
"I believe more increases will take place to show China's determination to tame inflation and curb bubbles in the property market," Sun said.
The People's Bank of China, the central bank, on late Tuesday announced the interest rate increases for both deposits and lending by 25 basis points, the first rise in 34 months.
"This is a surprising move for most market participants," said Sun Chi, an economist at Nomura International (Hong Kong) Ltd. "But we have long believed that a rate rise was inevitable this year."
Sun cited two reasons for his view. Firstly, real deposit interest rates have been in negative territory for about half a year, and this poses a risk of higher inflation expectations. Secondly, the benchmark lending rate has stayed at a historically low level even though the economy has recovered significantly from the bottom in the first quarter of 2009.
China's consumer prices have become a source of worry for policy makers since the beginning of this year. They have been above the benchmark one-year deposit rate since February and there is no sign of an immediate retreat. The Chinese Academy of Social Sciences even suggested China should revise its annual inflation target to 4 percent for the whole year from 3 percent to reflect the price increases.
The Consumer Price Index, a main gauge of inflation, grew at the fastest pace in 22 months in August at 3.5 percent. It was still much higher than the adjusted one-year deposit rate of 2.5 percent.
Analysts generally expected the September figure, due to be released today, to surge to a two-year high of up to 3.9 percent.
Sun Lijian, an economics professor at Fudan University, also said quantitative measures, such as the increase in reserve requirement, can no longer effectively check the inflating bubble in prices and in the housing market.
"I believe more increases will take place to show China's determination to tame inflation and curb bubbles in the property market," Sun said.
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