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The central bank announced yesterday that it would raise the minimum
rate banks charge on one-year loans by 27 basis points to 5.85 per cent,
the first hike since October
2004.
The rate rise, effective
today, is seen as an attempt to slow rapid lending growth and an
investment boom.
But the People's Bank of China kept its benchmark one-year deposit rate unchanged at 2.25 per cent.
"It's a very timely move as the first-quarter economic figures point to
signs of an overheating economy in the making," said Li Yongsen, an
economist with Renmin University of China.
The economy grew by a spectacular 10.2 per cent in the first quarter,
leading to some economists worrying about an overheated economy.
Fixed-asset investment, a closely watched economic indicator, jumped by
27.7 per cent in the same period, up from the previous year's 25.7 per
cent. Much of the bank lending is pouring into factories, buildings and
other fixed assets.
The central bank's concern over the higher-than-expected lending growth
may be the major reason prompting it to raise the lending rate, Li said.
"The central bank is apparently concerned about these figures,
especially the robust lending growth," Li said. "That's why it has
resorted to lending rate hikes instead of a reserve deposit ratio
increase.
"Compared with requiring banks to lock up more deposit reserves, a rate
hike is more effective in reining in lending growth," the economist said.
While the central bank rate increase is intended to discourage lending
in general, the government has also taken more targeted measures in
sectors where growth appears to be outstripping demand.
Fuelled by growing lending and a swelling trade surplus, China's money
supply, or M2 a broad measure of cash in circulation and in deposits
climbed 18.8 per cent on a year-on-year basis to 31.1 trillion yuan
(US$3.9 trillion) at the end of March.
Outstanding local currency loans in all financial institutions topped
20.6 trillion yuan (US$2.6 trillion) during the same period, up 14.7 per
cent on a yearly basis.
"The lending rate hike is aimed at maintaining the sound momentum of
the continuous, co-ordinated and healthy economic growth," the central
bank said in the statement posted on its website.
(China
Daily) | 
