The People's Bank of China, the
central bank, raised key savings and lending interest rates from
Sunday, March 18, the third time in 11 months in a bid to curb inflation and
asset bubbles in the world's fastest-growing major economy.
Zhou Xiaochuan, Governor of the
People's Bank of China, speaks during a news conference at the
International Monetary Fund (IMF) - World Bank meetings, in Singapore
September 17, 2006. The bank raised the key savings and lending interest
rates, beginning from March 18. [Reuters]
The one-year benchmark lending rate will be raised to
6.39 percent from 6.12 percent, and the one-year deposit rate will be
increased to 2.79 percent from 2.52 percent, according to a statement on the
bank's website (www.pbc.gov.cn)
Central bank Governor Zhou Xiaochuan is concerned that cash from a record
trade surplus is stoking excess investment, raising the risk of accelerating
inflation and boom-and-bust cycles in asset prices. Zhou has resisted calls from
Europe and the US to let the yuan strengthen at a faster pace, making China's
exports more expensive.
The central bank said, said in a statement posted on its website,
that this interest rates adjustment will be conducive to the rational
growth of credit and investment; conducive to maintaining a stable price level;
conducive to the steady operation of the financial system; conducive to to the
balanced economic growth and structural optimization, and conducive to promoting
sound and fast groth of the national economy.
"The data released in the past week suggests that the economy is not actually
slowing and that the government is becoming quite concerned that the economy is
disproportionally driven by investment and production," Glenn Maguire, chief
Asia economist at Societe Generale SA in Hong Kong, said.
"The central bank will probably raise interest rates again two more times
this year," Maguire said.
Fixed-asset investment in urban areas climbed 23.4 percent in the first two
months, down from 24.5 percent for all of 2006. China still must act to slow
investment, Ma Kai, head of the National Development and Reform Commission, the
country's top planning body, said last week.
China's economy, the world's fourth largest, expanded at the fastest pace in
11 years in 2006.
The central bank raised interest rates in April and August and last month
ordered banks to set aside more money as reserves for the fifth time in eight
months to rein in the money supply.
The trade surplus surged nine-fold in February from a year earlier to $23.76
billion, the second highest on record. Money supply grew 17.8 percent, the most
in six months. Inflation accelerated to 2.7 percent from 2.2 percent in January.
Record overseas sales pump cash into China's financial system, raising the
risk of property and stock bubbles. The trade surplus in 2006 was $177.5
billion. Chinese stocks have touched record highs this year and also had the
steepest decline in a decade.
Growth in urban fixed-assed investment declined to 24.5 percent for all of
2006 from 31.3 percent for the first six months. Still, the slowing of loans and
spending is "not stable," Ma cautioned in January.
China's economy expanded 10.7 percent last year. Gross domestic product
increased 10.4 percent in the fourth quarter, slower than the previous three
months and down from the second quarter's decade high of 11.5 percent.
Besides monetary policy, China uses administrative measures to rein in
investment. Developers face tighter land-appreciation taxes this year and
minimum prices for property to be used for industrial developments.
Environmental controls will curb spending on factories, according to the central