Via AP, China Raises Interest Rates for 5th Time this Year in Bid to Cool Inflation
- BEIJING (AP) -- China raised interest rates Friday for the fifth time this year amid signs that repeated attempts to cool the sizzling economy so far have had little effect.
- The interest rate on a one-year loan will rise by 0.27 percent, to 7.29 percent, as of Saturday, the Central Bank said. Rates paid on bank deposits also will rise by a similar margin, to 3.87 percent.
- A rate hike was widely expected after the government said this week that inflation rose to an 11-year high of 6.5 percent in August, driven by a surge in politically sensitive food prices.
- "We expect at least one more rate increase in the next six months," Ulrich said. "Inflation risks are on the rise in China, sparked by structural changes in the demand-supply situation for foodstuffs, as well as excess liquidity on the back of the widening trade surplus."
- Chinese leaders want to maintain high growth to reduce poverty but worry that the current boom, fueled by exports and investment, could push inflation to dangerous levels or ignite a financial crisis.
- The economy grew by 11.9 percent in the last quarter, and the World Bank this week raised its forecast for the full year's expansion by almost a full percentage point to 11.3 percent.
- Also Friday, the government said spending on factories, real estate and other urban assets in the first eight months of the year rose 26.7 percent from the same period last year.
- "This round of macroeconomic controls has continued for over four years. The relevant agencies have introduced many policy measures. But the effects haven't been obvious," the main Communist Party newspaper People's Daily said Friday.
- But economists question whether such small increases in interest rates will have any impact. Many Chinese companies finance investments out of revenues rather than with bank loans, so interest rate changes have no direct effect on them.
- The reserve rate rises are more than offset by the torrent of new deposits pouring into banks as booming exports send cash flooding through the economy.
Takeaway: Managing 11% GDP growth is a problem, but there are a lot worst problems to have I suppose. Let's keep an eye on that food inflation - it seems the measures so far by the Chinese institutions have been paltry at best to stem the flood of currency running through the Chinese economy. These are just tiny little steps, 27 basis points here, 27 there... (if anyone knows why 27 and not 25?? I'd love to know - I am sure there must be some interesting reason)
Long Chinese inflation
