Accessibility links

China Raises Interest Rates to Cool Economy


China's central bank has raised interest rates for the second time this year in its latest attempt to cool off its surging economy.

The Chinese central bank, the People's Bank of China, announced Friday an interest rate increase of .27 of a percentage point on benchmark one-year loans and deposits.

The increase, which takes effect Saturday, will raise the rate on deposits to 2.52 percent and the interest rate on loans to 6.12 percent.

China raised the interest rate on loans in April by a similar amount but kept the deposit rate unchanged.

Tim Condon is head of research for Asia at investment bank ING in Singapore. He says the additional rate hike reflects the Chinese government's frustration with its failure to slow lending growth.

"The authorities have expressed at the very highest level concerns with economic overheating," he noted. "They've been applying measures of various kinds for several months now. And, the failure of loan growth to slow down in July, I think, prompted this most recent move."

China's economy grew by 11.3 percent in the second quarter of this year, up from 10.3 in the previous quarter.

The Chinese government has been struggling to slow down overinvestment in hot sectors of the economy, such as construction to lower the risk of inflation and excessive bank lending.

China has already increased the amount of cash banks are required to hold and imposed limits on new construction projects.

Economists say Friday's interest rate rise may not be the last move the government makes this year to slow growth in the world's fourth largest economy.

XS
SM
MD
LG