China raises interest rates again

Saturday, December 25, 2010

BEIJING - The People’s Bank of China said it will raise the one-year lending and deposit interest rates by 25 basis points from Sunday, the second rate hike this year.

The bank had raised the benchmark lending and deposit rates Oct 20 by 25 basis points, first in about two years.

“This rate hike demonstrates Chinese authorities’ determination to keep inflation under control up front, or front-loaded tightening,” China Daily quoted Quing Wang, chief economists at Morgan Stanley in Honk Kong, as saying.

“Compared to rate hikes in the beginning of next year, a rate hike before year-end would have more tightening impact, as the interest rates on the medium- and long-term loans/deposits are reset at the beginning of each year according to the base rates,” he added.

“It’s a surprise for me. The second rate hike this year may indicate that China is entering a cycle of interest rate increases,” said Xu Biao, an economists with China Merchants Bank in Shenzhen.

“The move may also be targeted at recent developments in the property market. In cities like Shenzhen, property prices are rising quite strongly, and the central bank may want to curb asset price increases with higher interest rates,” Xu said.

Filed under: Economy

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