The central bank yesterday raised the interest rate for the
third time in less than a year to check surging loan growth.
The rise, announced on Saturday, led to 27-basis-point increase
in both one-year deposit and lending rates. The benchmark one-year
deposit rate now stands at 2.79 percent and the one-year lending
rate at 6.39 percent.
The adjustment followed the release of figures last week that
indicated surprisingly high credit growth during the first two
months of the year.
Financial institutions issued loans worth 981.4 billion yuan
(US$127 billion) during the two months, equal to 30 percent of all
loans extended for the whole of last year, according to the
People's Bank of China.
"The rate hike will help curb excessive credit growth and
soaring property prices," said Ha Jiming, chief economist of China
International Capital Corp.
China has been struggling with rapid investment growth and a
sizzling real estate market since 2003. Annual fixed asset
investment growth inched down from 26 percent in 2005 to 24 percent
last year.
But the fast loan growth in the first two months triggered fears
that funds are still being channeled to support new excessive
investments.
Ha said the rate rise is justified also for rectifying the
negative real interest rate, which has been lingering below zero
since the consumer price index (CPI) growth jumped to 2.8 percent
in December. The CPI, the key barometer of inflation, stood at 2.7
percent in February; and the one-year deposit rate before the rate
hike was 2.52 percent.
Ha said the central bank may need to consider using other tools
such as raising reserve requirements for commercial banks or
central bank bills if further tightening is needed.
Ba Shusong, a researcher with the Chinese Academy of Social
Sciences, agreed. He said the central bank has little room for
further interest rate rises because the United States may be
entering a rate-reduction period.
The renminbi's interest rate has been lower than the US dollar.
Shrinking the difference between interest rates of the yuan and the
greenback could prompt an influx of more hot money into China
seeking profits from the renminbi.
(China Daily March 19, 2007)
