Don’t miss the latest developments in business and finance.

China raises rates to counter inflation

Image
Bloomberg Beijing
Last Updated : Jan 25 2013 | 2:53 AM IST

China raised interest rates for the third time since mid-October ahead of a report forecast to show inflation accelerated to the fastest pace in 30 months.

The benchmark one-year lending rate will increase to 6.06 per cent from 5.81 per cent, effective tomorrow, the People’s Bank of China said on its website today. The one-year deposit rate will rise to 3 per cent from 2.75 per cent.

Oil and copper fell and emerging-market stocks extended losses on concern Premier Wen Jiabao’s campaign to contain consumer prices will slow the fastest-growing major economy. China joined India, Indonesia, Thailand and South Korea in boosting rates this year as Asian policy makers seek to avert economic overheating in the region leading the global rebound.

“Global markets may begin to see the frequent rate hikes as a sign that a growth slowdown in China is inevitable,” said Dariusz Kowalczyk, a Hong-Kong based economist at Credit Agricole CIB. “But in the end, the move will be seen as a sign of strength, with solid growth momentum allowing policy makers to raise rates.”

Oil for March delivery on the New York Mercantile Exchange fell as much as 75 cents, or 0.9 per cent, to $86.73 a barrel and was at $86.88 at 10.36 am London time. Copper slid on the London Metal Exchange.

Yuan climbs
In offshore trading in Hong Kong, the yuan climbed 0.1 per cent to 6.5555 per dollar. Non-deliverable forwards strengthened 0.2 per cent to 6.4275, signalling a gain of 2.6 per cent in the next 12 months from the Shanghai close of 6.5938.

The central bank moved on the last day of a week-long holiday and before a report next week that may show consumer prices rose 5.3 per cent in January, according to the median estimate in a Bloomberg News survey of economists.

More From This Section

A drought that’s threatening grain production and a new year surge in lending are adding to inflation risks after money supply jumped more than 50 per cent in two years. Besides increases in rates and banks’ reserve requirements, Wen’s campaign spans sales of state-food reserves, subsidies for low-income earners, and crackdowns on speculation and hoarding.

The central bank raised rates for longer-term deposits by more than the 25 basis point increase for one-year savings.

At the same time, the rates for loans of longer than one year were lifted by less than a quarter point.

‘Encourage savers’
“The goal is to encourage savers to keep their money in bank deposits rather than shifting to equities or property,” said Mark Williams, a London-based economist at Capital Economics Ltd.

China’s 0.75 percentage point of rate increases since the global financial crisis compare with India raising borrowing costs seven times for a total of 1.75 percentage points. In South Korea, where policy makers will meet this week to decide on rates, borrowing costs have been raised by 0.75 percentage point so far.

Also Read

First Published: Feb 09 2011 | 12:56 AM IST

Next Story