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ECONOMY
Weekly Watch> WEEKLY WATCH NO. 15, 2011> ECONOMY
UPDATED: April 8, 2011 NO. 15 APRIL 14, 2011
Interest Rate Hike
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The People's Bank of China, the central bank, on April 6 raised interest rates for the second time in 2011 in a bid to tackle inflation and let air out of the asset bubbles.

The one-year benchmark deposit interest rate rose to 3.25 percent from 3 percent, while the one-year benchmark lending rate rose from 6.06 percent to 6.31 percent, said the central bank.

As inflation remains a daunting challenge for the economy, China has spent the past six months draining market liquidity and adopting supply-side measures to curb consumer price surges.

"The timing of this particular rate hike is earlier than we have expected, as we forecast that the rate hike would be made in May-June when the headline inflation rate is expected to pick up significantly," said Wang Qing, a Morgan Stanley economist in Hong Kong.

"Our current CPI forecast is 5.2 percent year on year for March," he said. "The interest rate increase also suggests that the Chinese authorities are confident in the sustainability of the underlying growth momentum."

The interest rate hike is necessary since the benchmark one-year deposit rate still lags behind the CPI, said Zhuang Jian, a senior economist with the Asian Development Bank, China Office.

Meanwhile, inflationary pressures are mounting in the country due to massive monetary expansion in Japan and the political unrest in the Middle East, which forced up global commodities prices, he said.



 
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