China Raises Interest Rates to Curb Inflation

Anchor: China raises the benchmark one-year interest rate by 25 basis points starting from today(Wednesday).
Analysts say the move is in response to increasing inflationary pressures and signals prudent monetary policy for the whole year.

Wu Jia has more.

According to the People's Bank of China, the country's benchmark one-year deposit interest rate will climb to 3 percent, while the one-year loan interest rate will reach 6.06 percent. Meanwhile, the interest rate for loans of more than five years will rise by 20 basis points to 6.6 percent.

Ba Shusong, a researcher with the Development Research Center under the State Council, says the interest rate hike reflects the government's determination to control inflation.

"The increase of bank lending in January was very fast and the trend may continue in the future. Moreover, it's likely for commodity prices to record historic highs in January due to drought and the spending spree during the Spring Festival holiday. What's more, overseas prices are on the rise recently. So the interest rate hike is a response to inflationary pressures in January."

China's Consumer Price Index, a main gauge of inflation, recorded a year-on-year increase of 3.3 percent last year. The figure exceeded China's target to keep it below 3 percent. The government is expected to release January CPI figures next week.

Yi Xianrong, a financial researcher with the Chinese Academy of Social Sciences, says the latest interest rate hikes also target the over-heated property market.

"The property market will bear the brunt of interest rate hikes. During the past several years, the fast growth of the property market was based on excessive expansion of bank loans. So the property market will have to adjust as banks tighten loans."

Yi Xianrong points out that the government will probably maintain a tightening monetary policy for the whole year.

"The key is to observe how big the inflationary pressure will be and how fast the economy will grow as well as changes in the global economy. All these factors will determine the frequency and intensity of monetary policy in the remainder of the year."

The Chinese economy grew by 10.3 percent last year, adding to the country's pressure to prevent over-heating and control prices. Since last October, the central bank has raised the benchmark interest rate three times. The latest interest hike is the first this year, representing a renewed effort to cool prices and tighten liquidity.

For CRI, I'm Wu Jia.