CHINA RATE RISE TARGETS SOARING FOOD PRICES By Jamil Anderlini in Beijing
Monday, September 17, 2007
China's central bank raised interest rates for the second time in less than a month yesterday in an attempt to rein in soaring food prices, excessive bank lending and bubbles in the property and stock markets.
The People's Bank of China lifted the one-year benchmark deposit rate by 27 basis points to 3.87 per cent and the one-year lending rate by the same amount to 7.29 per cent, effective immediately. The PBOC has now lifted rates five times this year as it strives to contain headline inflation that reached 6.5 per cent in August, the fastest increase in more than a decade.
The rising consumer price index is being driven mostly by food staples such as pork and eggs but the world is watching closely to see whether inflation will spill over into other sectors, such as manufactured goods, in which China has helped slow the rate of price rises for a decade.
As well as raising interest rates, the central bank has lifted seven times this year the amount that banks must hold with it - the so-called reserve requirement ratio. Most recently, on September 6, it announced it would lift the ratio by another 50bp to12.5 per cent of banks' total deposits.
Wu Xiaoling, deputy -central bank governor, said yesterday Chinese banks were not heeding the central bank's directives to slow lending growth.
Banks are lending out money much faster than the central bank's target, with new loans reaching Rmb3,080bn ($409bn, £202bn) in the first eight months of the year, 97 per cent of the total for the whole of last year.
Excessive liquidity in the economy is being fed by the country's huge trade surplus, which grew $25bn in August to $162bn for the year to date - a 71 per cent increase from a year earlier.
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