The central bank yesterday raised the interest rate for the third time in
less than a year to check surging loan growth.
The rise, announced on
Saturday, led to 27-basis-point increase in both one-year deposit and lending
rates. The benchmark one-year deposit rate now stands at 2.79 percent and the
one-year lending rate at 6.39 percent.
The adjustment followed the
release of figures last week that indicated surprisingly high credit growth
during the first two months of the year.
Financial institutions issued
loans worth 981.4 billion yuan ($127 billion) during the two months, equal to 30
percent of all loans extended for the whole of last year, according to the
People's Bank of China.
"The rate hike will help curb excessive
credit growth and soaring property prices," said Ha Jiming, chief economist of
China International Capital Corp.
China has been struggling with rapid
investment growth and a sizzling real estate market since 2003. Annual fixed asset investment growth inched down from 26 percent in
2005 to 24 percent last year.
But the fast loan growth in the first two
months triggered fears that funds are still being channeled to support new
excessive investments.
Ha said the rate rise is justified also for
rectifying the negative real interest rate, which has been lingering below zero
since the consumer price index (CPI) growth jumped to 2.8 percent in December. The CPI, the
key barometer of inflation, stood at 2.7 percent in February; and the one-year
deposit rate before the rate hike was 2.52 percent.
Ha said the central
bank may need to consider using other tools such as raising reserve requirements
for commercial banks or central bank bills if further tightening is
needed.
Ba Shusong, a researcher with the Chinese Academy of Social
Sciences, agreed. He said the central bank has little room for further interest
rate rises because the United States may be entering a rate-reduction
period.
The renminbi's interest rate has been lower than the US dollar.
Shrinking the difference between interest rates of the yuan and the greenback
could prompt an influx of more hot money into China seeking profits from the
renminbi.
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