China raises interest rates by 0.27%
(Reuters)
Updated: 2006-08-18 18:47
BEIJING - China raised rates on Friday for the second time in four months in
the latest effort to slow a boom in credit and investment that risks
destabilising the world's fourth-largest economy.
The People's Bank of China, the central bank, said on its Web site (www.pbc.gov.cn) that it had ordered an increase
of 0.27 percentage point in commercial banks' benchmark one-year deposit and
lending rates.
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A customer checks hundred Yuan bank notes at
an ATM in Beijing in this July 21, 2005 file photo. China raised rates on
Friday for the second time in four months in the latest effort to slow a
boom in credit and investment that risks destabilising the world's
fourth-largest economy. [Reuters]
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The one-year deposit rate is now 2.52 percent and the one-year lending rate
stands at 6.12 percent.
The PBOC raised lending rates by the same margin on April 27 but kept deposit
rates unchanged.
"To consolidate the achievements in macro-economic control, it's necessary to
use interest rates as a lever to curb investment and demand for credit while
mopping up liquidity," the central bank said.
As is often the case in China, the tightening caught many in the markets off
guard.
After tentative signs of slower investment and output growth in July, many
economists had expected the central bank to hold fire even though money supply
and credit are growing well above target.
"The rate increase is a surprise," said Shahab Jalinoos, a senior currency
strategist with ABN AMRO in Singapore.
"It is difficult to say what impact it will have on the spot currency market,
but globally it will be seen as another example of liquidity removal," he said.
Japan, the European Central Bank and Australia are among major central banks
that have raised borrowing costs lately, although the Federal Reserve has paused
after a two-year campaign of rate rises.
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