China hikes in­ter­est rates for sec­ond time

The Pak Banker - - Front Page -

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

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