Central bank raises interest rates, 3rd time this year

Updated: 2007-07-20 18:00

BEIJING,  -- China will raise one-year deposit and loan interest rates by 27 basis points to 3.33 percent and 6.84 percent respectively effective on July 21, the People's Bank of China announced on July 20.

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This is the third time in 2007 that China raised the one-year benchmark interest rates as a further move to curb the country's perceptively over-heated economy.

The move aims to "rationalize the growth of lending and investment, adjust and stabilize expectancy of inflation and maintain price stability", the People's Bank of China (PBoC) said in a statement on its website.

China raised the one-year deposit and loan interest rate by 27 basis points in March and by 27 and 18 basis points respectively in May.

It is the fifth time since April 2006 that the central bank has raised key interest rates.

"The rates will be conducive to guiding monetary credit and investment growth in a reasonable manner. They will regulate and stabilize inflation expectations and maintain stable price levels," the statement said.

On Thursday, the National Bureau of Statistics reported that the economy expanded by 11.9 percent in the April-June quarter over the same period of 2006, even faster growth than the previous quarter's 11.1 percent.

Inflation also rose, with consumer prices climbing by 4.4 percent in June. The economy also was under pressure from a swollen trade surplus and high energy consumption, the National Statistics Bureau said.

"We will further enhance and improve macro control and put into practice various policies set by the central government," Li Xiaochao, a statistics bureau spokesman, said at a news conference in announcing the figures Thursday.

Chinese leaders want fast growth to reduce poverty but are trying to cool some industries. They worry that runaway investment could push up inflation or ignite a debt crisis if borrowers default. Besides the interest rate hikes, they have also imposed investment curbs on some industries.

The rise in consumer prices, lifted by a 7.6 percent jump in food costs, was well above the official target of 3 percent.

Chinese leaders are worried about the political impact of rising food prices, which hit the poor, populous countryside especially hard.

Last week, Beijing increased its estimate of 2006 gross domestic product growth from 10.7 percent to 11.1 percent, bringing China closer to overtaking Germany as the world's third-biggest economy behind the United States and Japan.

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