August 9, 2022

China Raises Interest Rates

HONG KONG — China on Wednesday raised interest rates for the fifth time in nine months, the latest in a series of moves aimed at cooling the pace of economic growth and the steep price rises that have accompanied expansion.

The central bank announced that it was raising the key lending and deposit rates in the world’s second-largest economy, after the United States, by a quarter of a percentage point. The increase had been widely expected by analysts.

The central bank said the one-year deposit rate would rise to 3.5 percent, from 3.25 percent, beginning Thursday. The one-year lending rate was raised to 6.56 percent, from 6.31 percent.

Signs that inflation in China has accelerated to levels well above what the Chinese authorities are comfortable with have mounted in recent months and prompted Beijing to step up its efforts at reining in the ample lending that fueled growth and helped fan sharp rises in property prices as well as overall inflation.

Data released last month showed that consumer prices in May had risen 5.5 percent from the same period last year, and economists widely believe that data for June, due next week, will show an even more marked increase, of 6 percent or more.

The rate announcement came just weeks after news of the latest in a long line of instructions by Beijing to the nation’s banks to extend fewer loans — the 12th such move since early 2010.

Beijing’s gradual cutback of lending — by raising reserve-requirement ratios for banks, which reduces the amount of money available for loans — has had the desired effect of moderating the sizzling pace of growth to a level that most economists here believe points to a soft landing for the Chinese economy.

However, many forecasters also believe that Beijing now has little room left to increase reserve-requirement ratios much further or to lift interest rates much more. Another small rate increase may come later in the year, but over all, the current round of tightening may soon have run its course, many believe.

The price rises that have accompanied soaring growth, meanwhile, have so far shown little sign of abating — in part because of sharp increases globally in the costs of raw materials. Natural disasters in China also have helped push up the cost of food.

Inflation levels could ebb somewhat later this year, but are widely expected to remain elevated, presenting Beijing with a headache. The Chinese authorities are intensely aware that soaring household bills could lead to widespread public dissatisfaction.

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