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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 economy grew 11.3 per cent in the second quarter, the fastest pace since 1996, prompting economists to call on the government to take stronger macro control measures to cool it down.

"It (the rate hike) comes as no surprise, actually it should have come earlier," said Yuan Gangming, an economist with the Chinese Academy of Social Sciences.

"The first rate increase (in April) largely failed, as shown by robust investment and credit growth in the last two months. This indicates the central bank should have moved much earlier."

The central bank has increased the reserve ratio the proportion of deposits a bank is required to have with the central bank twice this year in a bid to curb rapid credit growth, a policy that some economists say is ineffective.

"Rate hikes are more effective than increasing the reserve ratio," Yuan said.

The increase for both the long-term deposit and lending rates is larger than that for short-term deposit and lending rates, a move that the central bank said was designed to curtailfixed assetinvestment and long-term lending demand.

The five-year deposit rate is up by 0.44 of a percentage point to 4.14 per cent, while the rate for loans over five years or longer has been raised by 0.45 of a percentage point to 6.84 per cent, the central bank said.