China raises interest rates amid inflation worriesBy AP News Dec 26, 2010 10:38AM UTC
BEIJING (AP) — China increased interest rates Saturday for the second time in little more than two months as the government steps up its fight against rising inflation that could threaten political stability.
Those worries about inflation in the world’s second-biggest economy meant the move by The People’s Bank of China had been expected by the end of the year or early next year.
Effective from Sunday, the benchmark 1-year lending rate will climb 25 basis points to 5.81 percent, while the 1-year deposit rate will go up the same amount to 2.75 percent, the central bank said on its website.
Earlier this month, China’s leaders wrapped up an annual economic planning meeting with a pledge to cool surging inflation while shifting the economy toward more stable, balanced growth.
Inflation is especially sensitive in a society where poor families spend up to half their incomes on food. Rising incomes have helped to offset price hikes, but inflation undercuts economic gains that help support the ruling Communist Party’s claim to power.
Inflation jumped to 5.1 percent in November, a 28-month high despite a crackdown on speculation and repeated moves to curb a flood of money circulating in the economy from massive stimulus spending and bank lending.
Chinese banks lent a total of 7.45 trillion yuan ($1.1 trillion) in January-November and are certain to overshoot the government’s official lending target of 7.5 trillion yuan.
While a frenzy of lending over the past two years has helped China rebound quickly from the global crisis, combined with bad weather and rising global commodity prices, it has complicated efforts to cool inflation.
November’s rate was way above the government’s original target of 3 percent.
The rate increases, which follow similar moves Oct. 19, also highlight the divergence of China’s robust economic expansion from the United States, Europe and Japan, which still are trying to shore up growth.
China’s rapid economic growth eased to 9.6 percent in the three months ending in September from a post-crisis high of 11.9 percent in the first quarter. It is expected to fall further in coming months but to remain strong.
Mindful of the political turmoil linked to past bouts of inflation, Beijing has already sought to reassure the public it has prices under control.
Earlier this month it raised banks’ reserve requirement ratio — meaning they have to hold more deposit funds in reserve rather than lending them out —for the sixth time this year to help curb the surge in lending.