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Interest rates up again to cool down economy, 08/2006

By Zheng Lifei (China Daily)
Updated: 2006-08-19 09:11

China's central bank raised interest rates on Friday for the second time this year, a move many economists say comes as no surprise as the country moves to cool its rapidly growing economy.

The rate hike, which took effect on Saturday, will see commercial banks' one-year benchmark deposit and lending rate both raised by 0.27 of a percentage point to 2.52 per cent and 6.12 per cent respectively, the central bank said.

"In order to consolidate the macro economic control achievements and curb demand for credit, it is imperative to restrain investment and credit expansion by using interest rates," the People'sBank of Chinaexplained.

"The rate hike is expected to lead to a sound growth of both investment, money supply and credit, and is also expected to keep the national economy on a fast, healthy and stable track."

The bank raised the lending rate by the same margin in April, but left the deposit rate unchanged, an arrangement that some economists said only made banks more likely to lend as the spread between deposit and lending widened.

"The latest rate hike is no surprise given that the economy is showing no signs of slowing down," said Wang Yuanhong, an economist with the State Information Centre.

The rate hike margin, Wang said, was moderate, meaning the central bank still has room to take bigger steps if the economy maintains its growth pace.