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ECONOMY
Weekly Watch> WEEKLY WATCH NO. 28, 2011> ECONOMY
UPDATED: July 8, 2011 NO. 28 JULY 14, 2011
Growing Interest Rates
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The People's Bank of China, the central bank, on July 6, announced a rise in interest rates for the third time this year in a bid to curb inflation and tame climbing property prices.

Effective on July 7, the one-year benchmark deposit rate rose to 3.5 percent from 3.25 percent, while the one-year benchmark lending rate grew by the same 25 basis points to 6.56 percent, said the central bank.

As inflation remains an acute concern for the economy, policymakers have taken steps to soak up market liquidity. The central bank has also raised the reserve requirement ratio six times so far this year.

The consumer price index (CPI), a main gauge of inflation, accelerated to 5.5 percent in May, the highest level in 34 months and well above the government's target ceiling of 4 percent.

"The move is expected since China's interest rates remain negative in real terms," said Ba Shusong, Deputy Director of the Research Institute of Finance at the Development Research Center of the State Council. "It would also help fight inflation if China can further increase its currency flexibility."

Lian Ping, chief economist with the Communications Bank of China, expected the CPI to peak in June before it tapers off in the latter half of the year.

"China's inflation battle is almost at an end," said Frederic Neumann, an economist with the HSBC in Hong Kong. "Already, there are signs that price pressures are coming off, and the latest rate increase may therefore have been the last in the cycle."



 
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