Starting from Saturday, commercial banks' one-year benchmark
deposit and lending rate are both raised by 0.27 of a percentage
point to 2.52 percent and 6.12 percent respectively, China's
central bank announced interest rate hike yesterday.
"In order to consolidate the macro economic control achievements
and curb demand for credit, it is imperative to restrain investment
and credit expansion by using interest rates," the People's Bank of
China explained.
"The rate hike is expected to lead to a sound growth of
both investment, money supply and credit, and is also expected to
keep the national economy on a fast, healthy and stable track."
The bank raised the lending rate by the same margin in April,
but left the deposit rate unchanged, an arrangement that some
economists said only made banks more likely to lend as the spread
between deposit and lending widened.
"The latest rate hike is no surprise given that the economy is
showing no signs of slowing down," said Wang Yuanhong, an economist
with the State Information Centre.
The rate hike margin, Wang said, was moderate, meaning the
central bank still has room to take bigger steps if the economy
maintains its growth pace.
China's economy grew 11.3 percent in the second quarter, the
fastest pace since 1996, prompting economists to call on the
government to take stronger macro control measures to cool it
down.
"It (the rate hike) comes as no surprise, actually it should
have come earlier," said Yuan Gangming, an economist with the
Chinese Academy of Social Sciences.
"The first rate increase (in April) largely failed, as shown by
robust investment and credit growth in the last two months. This
indicates the central bank should have moved much earlier."
The central bank has increased the reserve ratio the proportion
of deposits a bank is required to have with the central bank twice
this year in a bid to curb rapid credit growth, a policy that some
economists say is ineffective.
"Rate hikes are more effective than increasing the reserve
ratio," Yuan said.
The increase for both the long-term deposit and lending rates is
larger than that for short-term deposit and lending rates, a move
that the central bank said was designed to curtail fixed asset
investment and long-term lending demand.
The five-year deposit rate is up by 0.44 of a percentage point
to 4.14 percent, while the rate for loans over five years or longer
has been raised by 0.45 of a percentage point to 6.84 percent, the
central bank said.
(China Daily August 19, 2006)