China may raise interest rates twice this year
(Bloomberg)Updated: 2007-04-20 10:56
China may raise interest rates twice this year and order banks to set aside more money to slow lending after economic growth accelerated to 11.1 percent in the first three months of the year, a survey showed.
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Premier Wen Jiabao is trying to stop cash from a record trade surplus from overheating the economy, which grew at the second-fastest pace in 12 years even with borrowing costs near an eight-year high. His challenge will be to slow growth without prompting a property and stock market rout.
"The government will likely introduce another round of tightening measures very soon," said Mingchun Sun, an economist at Lehman Brothers Holdings Inc. in Hong Kong. "On top of a rate hike, it may include further increases in the reserve requirement ratio and more administrative measures."
China's GDP will grow 10.4 percent in 2007, according to the median estimate of 11 economists surveyed yesterday, up from 9.9 percent before the figures were released.
The People's Bank of China raised borrowing costs three times and increased the reserve requirement ratio six times in the past year. The government also curbed land use, restricted project approvals and cut export rebates for steel and textiles to discourage investment.
Lending Growth
Banks are required to hold rather than lend 10.5 percent of their deposits after a 0.5 percentage point increase on April 16. Each increase of that size removes about 170 billion yuan ($22 billion) from the financial system.
That hasn't cooled lending growth. Banks made 1.4 trillion yuan of new loans in the first quarter, nearly half the total for last year.
Still, fixed-asset investment in urban areas climbed 25.3 percent in the first quarter from a year earlier from 24.5 percent for all of 2006. It rose 29.8 percent in the first quarter last year.
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