The central bank yesterday raised the
interest rate for the third time in less than a year to check surging loan
The rise, announced on Saturday, led to 27-basis-point increase in both
one-year deposit and lending rates. The benchmark one-year
deposit rate now stands at 2.79 percent and the one-year lending
rate at 6.39 percent.
The adjustment followed the release of figures last week that indicated
surprisingly high credit growth
during the first two months of the year.
Financial institutions issued loans worth 981.4 billion yuan ($127 billion)
during the two months, equal to 30 percent of all loans extended for the whole
of last year, according to the People's Bank of China.
"The rate hike will help curb excessive credit growth and soaring
property prices," said Ha Jiming,
chief economist of China International Capital Corp.
China has been struggling with rapid investment growth and a sizzling
real estate market since 2003.
Annual fixed asset investment growth inched down from 26 percent in 2005 to 24
percent last year.
But the fast loan growth in the first two months triggered fears that funds
are still being channeled to support new excessive investments.
Ha said the rate rise is justified also for rectifying the negative real
interest rate, which has been lingering below zero since the consumer price
index (CPI) growth jumped to 2.8 percent in December. The CPI, the key barometer
of inflation, stood at 2.7 percent in February; and the one-year deposit rate
before the rate hike was 2.52 percent.
Ha said the central bank may need to consider using other tools such as
raising reserve requirements for commercial banks or central bank bills if
further tightening is needed.
Ba Shusong, a researcher with the Chinese Academy of Social Sciences, agreed.
He said the central bank has little room for further interest rate rises because
the United States may be entering a rate-reduction period.
The renminbi's interest rate has been lower than the US dollar. Shrinking the
difference between interest rates of the yuan and the greenback could prompt an
influx of more hot money into China seeking profits from the renminbi.
benchmark one-year deposit
high credit growth:
market : 房地产市场