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| China's central bank hikes interest rates |
SHANGHAI, Aug. 22 -- CHINA raised interest rates for the fourth time this year as it tries to rein in the highest inflation in more than a decade, the central bank said yesterday.
The benchmark lending rate jumped 0.18 percentage point, and the deposit interest rate climbed 0.27 percentage point starting today, the People's Bank of China said on its Website.
The one-year lending rate edged up from 6.84 percent to 7.02 percent, and the one-year deposit rate went from 3.33 percent to 3.6 percent.
The lending rate for the public housing fund rose 0.09 percentage point.
"The interest rate hikes are aimed at stabilizing inflation and better directing the issuance of credit," the central bank said.
The Consumer Price Index, the main gauge of inflation, jumped 5.6 percent year on year in July - the fastest growth since February 1997.
The higher-than-expected upswing beat the 4.4 percent increase in June and sent combined inflation up to 3.5 percent so far this year, beyond the central bank's three percent target for all of 2007.
Economists have long expected further rate increases.
Stephen Green, a Standard Chartered Bank senior economist, said yesterday he had anticipated the move after the July inflation figure.
"Importantly, public expectations about inflation have risen in recent weeks, so the PBOC has to fight the expectations battle," Green said. "Cue this quick move - and on a Tuesday which is quite unusual. The PBOC usually waits until Friday or Saturday in order not to scare the markets."
It was the second time this year that the central bank widened the gap between deposit and lending rates.
The move is meant to encourage companies and individuals to save more of their earnings.
But the new one-year deposit rate, after a five percent tax, works out to 3.42 percent, still much lower than the July inflation figure.
The effective deposit rate is thus negative, discouraging savers, who in the past have shifted their money into the red-hot stock market..
Zhang Qi, a Haitong Securities Co analyst, said the mainland stock markets may take a hit following the rate increases, which were announced after yesterday's market close.
"The current valuation is a bit high, and there is more room for a correction than an upswing," Zhang said. "With news like the rate hike and the opening of direct Hong Kong stock trading for individuals, the index is under pressure for a correction in the short term."
The State Administration of Foreign Exchange on Monday approved a pilot program to allow private investors to trade Hong Kong shares directly via domestic accounts.
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