China hikes interest rates for second time
BEIJING: Hard-pressed to control soaring prices and spiralling inflation, China's central bank today hiked oneyear lending and deposit interest rates for the second time this year.
The People's Bank of China (PBOC) said in a statement that it will hike the benchmark interest rate by 25 basis points from today, which will increase the one-year lending rate to 5.81 per cent and the one-year deposit rate to 2.75 per cent.
PBOC had last increased its benchmark lending and deposit rates by 25 basis points on October 20, which was the first increase in nearly three years.
PBOC officials said the new measures were announced to coincide with the festive holiday season all over the world so that it would not have any impact on global markets.
The rate hike comes after PBOC Vice-Governor Hu Xiaolian said that China would bring its overall money supply to a normal level using various policy tools.
This was in sync with the shift in the government's monetary policy strategy from "moderately loose" to "prudent", with the objective of reining in rising inflationary pressure and minimising the chance of asset bubbles.
China's inflation rate accelerated to a 28-month high of 5.1 per cent in November. In addition, the quantum of new loans extended by various banks touched 7.45 trillion yuan (USD 1.17 trillion) in the first 11 months this year, compared to the government's fullyear target of 7.5 trillion yuan.
A recent PBOC survey shows that the proportion of Chinese citizens satisfied with the current price level has sunk to an 11-year low, with only 17.3 per cent of consumers indicating that they will consume more in the future.
Li Daokui, a member of the PBOC's monetary policy committee, said the rate hike was mainly aimed at managing inflationary expectations and reflected the policy shift, as tightening the money supply is the best way to curb inflation.
Besides interest rate hikes, China had increased the bank reserve ratio requirement six times in 2010 to 18.5 per cent and 19 per cent for some large commercial banks.
"The decision was made in consideration of China's economic condition next year," Lian Ping, a chief economist with Bank of Communications, the country's fifth largest lender, said. -PB News