BIZCHINA> Recent Adjustments
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BIZCHINA> Recent Adjustments
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Rates raised for first time in a decade, 10/2004
By Xu Binglan (China Daily)
Updated: 2004-10-29 05:46 The central bank yesterday raised interest rates for the first time in nearly a decade as lingering concerns over inflation and emerging underground loans prompted a bolder move to slow economic growth and lure back money circulating outside the banking system. After months of debate, the hike of just over a quarter of a percentage point by the People'sBank of China(PBOC) also indicates the central government has finally decided to shift from a selective to a sweeping approach in cooling economic growth, which stood at 9.1 per cent during the first three quarters. "This interest rate rise... is to make bigger use of economic measures in resource allocation and macro-adjustment," the PBOC said in a statement while announcing the raising of benchmark rates on one-year yuan loans to 5.58 per cent from 5.31 per cent and the rate on one-year deposits to 2.25 per cent from 1.98 per cent. Before jacking up interest rates, measures used included banning new investments in certain sectors and imposing tougher rules for converting farmland for industrial use, as well as repeated increases of commercial banks' required reserves. There have been calls for an interest rate hike from the beginning of the current round of macroeconomic adjustment - launched in the spring - but the central government was cautious in this regard fearing that higher funding costs would hurt the sectors that were not overheating. The initial cooling-down measures did suppress run-away investment growth. But after a few months, officials and economists found that investment growth remained high and many investors responsible for the undesired growth in sectors such as real estate were obtaining loans from creditors that shun banks because of low interest rates. (For more biz stories, please visit Industries)
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