China's central bank announced on Saturday that the
one-year benchmark interest rates are raised by 0.27 percentage
points as of March 18.
The one-year rate for deposits is increased to 2.79 percent and
that for loans to 6.39 percent, according to the People's Bank of
China, or the central bank.
This is the first interest rate rise in 2007 after the central
bank had raised commercial banks' deposit reserve ratio by 0.5
percentage points twice earlier this year to rein in excessive bank
lending.
The central bank raised the rates for both deposits and loans by
the same margin in August last year.
Raising the interest rates will help rationalize the growth of
investment and lending, maintain price stability and promote
healthy and fast development of the economy, the central bank said
in a statement on its website.
"By raising the interest rates, the central bank signaled its
concern over the trend towards a higher inflation rate and an
overheated economy", said Tang Min, chief economist with the Asia
Development Bank Mission in China.
China's economy surged 10.7 percent last year, the fourth
consecutive year of double-digit growth, driven by hefty investment
and rocketing foreign trade, both of which registered a 24 percent
year-on-year growth in 2006.
The Chinese government planned to keep the country's consumer
price index (CPI), a major inflation indicator, under three percent
this year but the index rose 2.7 percent in February and is still
likely to rise further.
"The monetary policy must ensure the balanced economic
development as the serious problem of excess liquidity is affecting
every aspect of the economy", said Qin Chijiang, vice secretary
general of the China Society for Finance and Banking.
China will employ a full range of monetary policy tools to
adjust money and credit supplies in order to address the problem of
excess liquidity in the banking system, according this year's
government work report.
"The reserve ratio adjustments in January and February were
effective in absorbing excess liquidity in banks but failed to curb
commercial bank's excessive lending", said Yin Jianfeng, an expert
with the China Academy of Social Sciences, adding that "the
interest rate rise will help control the overall supplies of money
and credit".
"To withdraw excess liquidity, the central bank had employed a
full range of monetary policy tools, including issuing notes,
raising deposit reserve ratio and increasing the benchmark interest
rates", said Qin.
Tang believed an increase of 0.27 percentage points in the
interest rates was merely a "slight adjustment" and did not herald
the end of the central bank's control policy.
The central bank usually raises deposit reserve ratio when there
is excess liquidity in the banking system and inflation pressures
remain moderate, said Tang.
But various measures - including an interest rate rise - will be
adopted once inflation pressures increase, he added.
Yin said, "The central bank usually raises the benchmark
interest rates by 0.27 percentage points because sharp adjustments
will make too strong an impact on the market."
"An interest rate rise may cause overseas idle funds to enter
the country", said Qin. "Economic restructuring is the fundamental
way of curbing excess liquidity and preventing a rebound in
investment".
(Xinhua News Agency March 18, 2007)