China Raises Interest Rates


China has raised interest rates for the fourth time in five months as the government struggles to reduce bank lending, rein in inflation and slow economic growth to a more sustainable pace.

The central bank said the benchmark one-year lending and deposit interest rates would be increased by 25 basis points from Wednesday. The move would bring the deposit rate to 3.25 per cent and the lending rate to 6.31 per cent.

The rise came earlier than many had anticipated and suggested that March inflation data, which is scheduled for release early next week, would probably be higher than expected.

In February, consumer price inflation in China rose 4.9 per cent from a year earlier, the same reading as in January. But politically sensitive food prices accelerated and producer prices increased 7.2 per cent, their fastest rise since October 2008.

Beijing has put fighting inflation at the top of its agenda this year, amid concerns that runaway price rises could spark social instability in the one-party state, as has occurred in the past.

In addition to raising interest rates, Beijing has raised the ratio of deposits that banks must hold in reserve with the central bank nine times since the start of last year, in an effort to limit the amount they can lend. Large banks in China are now subject to required reserve ratios of at least 20 per cent.


TradingEconomics.com, FT
4/5/2011 2:02:58 PM