China, the emerging economic powerhouse, raised benchmark bank lending rates
for the first time in 18 months on Thursday, prompting sky-high world oil and
commodity prices and some major stock markets to take the U-turn.
A bank staff arrange yuan notes at a bank in
Nanjing, east China's Jiangsu province. China's central bank raised
benchmark bank lending rates for the first time in 18 months on Thursday.
The People's Bank of China raised one-year lending rates to 5.85 percent from
5.58 percent. The rate rise, effective from Friday, is seen as an attempt to
slow rapid lending growth and the skyrocketing investment.
The move taken by the People's Bank of China, the central bank, is seen as an
attempt by Beijing to prevent the fastest growing economy in the world from
overheating. It grew by a spectacular 10.2 per cent in the first three months
this year, China's official statistics said.
The National Bureau of Statistics reported last week that China's fixed-asset
investment, a closely watched economic indicator, jumped by 27.7 per cent in the
first quarter, up from the previous year's 25.7 per cent. Much of the bank
lending is pouring into new factories, buildings and other fixed asset projects.
Meanwhile, China's banks released 1.26 trillion yuan in new loans in the
first quarter -- more than half the central bank's target for the whole year.
The world financial and raw material market jitters came amid concerns the
move may cool China's annual 10-percent-plus economic boom -- a growth driving
the fastest world expansion in the past three decades and seemingly endless
growth in China's demand for raw materials and investment.
Oil prices, which surged in recent months in part on growing demand from
China, fell and shares of mining companies tumbled as traders bet that the
growing demand for copper, steel and other commodities fueled by China's rapid
expansion could slow.
"The move is significant in the sense that it
signals the authorities in China are now acting to reduce rates of economic
growth, despite its low level of inflation," Paul Niven, Head of Asset
Allocation at F&C Asset Management in London, said in an interview with the
The People's Bank of China said the move was meant to keep the economy on an
even keel. "The increase in the lending rate is aimed at further strengthening
the fruits of macro controls and keeping solid momentum for the economy to grow
in a continuous, rapid, coordinated and healthy manner," it said in a statement.
While hiking the lending rates, the bank, for the time being, kept its
benchmark one-year deposit rate unchanged at 2.25 per cent, a move seen by some
analysts that the Central Bankers do not want to put too much cool water on its
economy by dampening domestic consumption, and, its seemingly reviving Shanghai
and Shenzhen stock bourses. China's stock market has been bearish for the past
"It's a very timely move as the first-quarter economic figures point to signs
of an overheating economy in the making," said Li Yongsen, an economist with
Renmin University of China, in an interview with China Daily.
with requiring banks to lock up more deposit reserves, a rate hike is more
effective in reining in lending growth," Li said.