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Home >Expats Living in ShanghaiInterest rate is going up again.
Update：2013-12-10 00:56 Views：
CHINA has raised interest rates for the second time this year - and the fourth increase since October - as it tries to dampen high inflation.The benchmark one-year lending rate rises to 6.31 percent from today, up 0.25 percentage points, the People's Bank of China said on its website last night. The one-year deposit rate will increase by the same level to 3.25 percent.
China has raised the benchmark rates four times, 25 basis points each time, since mid-October.
The public housing fund lending rates will also rise from today.
The series of rates rises reflects concern that overheating and excess liquidity in the Chinese economy are driving up prices, especially of food. China's consumer price index, a main gauge of inflation, rose 4.9 percent in February, driven by an 11 percent jump in food costs.
The government's full-year target is 4 percent.
"The rate increases come somewhat earlier than expected, or frontloaded, as we had widely expected the move later this month," Lu Zhengwei, an Industrial Bank senior economist, said yesterday.
"Inflationary pressure from rising global oil prices and a new high in the domestic consumer price index are the main drivers for the rate increase. In short, curbing inflation is still a policy priority at the stage," Lu added.
Guo Tianyong, a professor at the Central University of Finance and Economics, echoed that view, noting that rate increases can curb inflation and housing prices bubbles.
Crude oil extended its decline after the rate rises announcement. Oil for May delivery on the New York Mercantile Exchange fell as much as 97 cents to US$107.50 a barrel and was at US$107.58 at 11:05am London time.
Brent crude pushed above US$120 a barrel on Monday after traders voiced concern that continued fighting in Libya and the prospect of a resurgent United States economy would put pressure on supplies.
Domestically, the rate increases are deemed preemptive ahead of the announcement of March inflation later this month.
Lu said he expected March inflation to rise to a new high of 5.2 percent.
February's 4.9 percent increase from a year earlier means the real savings rate is still lagging behind inflation after the latest increases, an incentive for households to switch savings to asset markets.
People's willingness to spend dropped to its lowest in 12 years recently despite more Chinese households being happy with price levels, a central bank survey showed in March.
Some 20,000 households in 50 cities were questioned and just 14.2 percent said they would spend more, the lowest level since 1999. About 44.2 percent preferred to invest while 41.6 percent would rather save more.
Lu said the one-year savings interest rates could rise to as high as 4 percent by the end of this year after two or three more interest rate increases.
Besides the interest rate increases, China has raised the reserve requirement rate nine times since 2010 to mop up liquidity. Big banks face a requirement of 20 percent and economists said that could rise to 23 percent by the end of the year.
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