Beijing: China raised interest rates for the third time since mid-October ahead of a report forecast to show inflation accelerated to the fastest pace in 30 months.
The benchmark one-year lending rate will increase to 6.06 per cent from 5.81 per cent, effective tomorrow, the People's Bank of China said on its website yesterday. The one-year deposit rate will rise to 3 per cent from 2.75 per cent.
Oil and copper fell and emerging-market stocks extended losses on concern Premier Wen Jiabao's campaign to contain consumer prices will slow the fastest-growing major economy.
China joined India, Indonesia, Thailand and South Korea in boosting rates this year as Asian policy makers seek to avert economic overheating in the region leading the global rebound.
Slowdown
"Global markets may begin to see the frequent rate hikes as a sign that a growth slowdown in China is inevitable," said Dariusz Kowalczyk, a Hong-Kong based economist at Credit Agricole CIB. "But in the end, the move will be seen as a sign of strength, with solid growth momentum allowing policy makers to raise rates." In offshore trading in Hong Kong, the yuan climbed 0.1 per cent to 6.5555 per dollar.
Non-deliverable forwards strengthened 0.2 per cent to 6.4275, signalling a gain of 2.6 per cent in the next 12 months from the Shanghai close of 6.5938. The central bank moved on the last day of a week-long holiday and before a report next week that may show consumer prices rose 5.3 per cent in January, according to the median estimate in a Bloomberg News survey of economists.
A drought that's threatening grain production and a New Year surge in lending are adding to inflation risks after money supply jumped more than 50 per cent in two years.
Besides increases in rates and banks' reserve requirements, Wen's campaign spans sales of state-food reserves, subsidies for low- income earners, and crackdowns on speculation and hoarding. The central bank raised rates for longer-term deposits by more than the 25 basis point increase for one-year savings. At the same time, the rates for loans of longer than one year were lifted by less than a quarter point.
"The goal is to encourage savers to keep their money in bank deposits rather than shifting to equities or property," said Mark Williams, a London-based economist at Capital Economics Ltd.
Comparison
China's 0.75 percentage point of rate increases since the global financial crisis compare with India raising borrowing costs seven times for a total of 1.75 percentage points. In South Korea, where policy makers will meet this week to decide on rates, borrowing costs have been raised by 0.75 percentage point so far.
China is among Asian countries that risk being caught in a "policy trap" by not raising interest rates fast enough to curb inflationary pressures, Stephen Roach, non-executive chairman of Morgan Stanley Asia Ltd, said in a note yesterday.
"So far, the Chinese leadership has adopted a measured approach to inflation," Roach said. "The mix of Chinese policy tightening, however, needs to shift much more decisively toward higher interest rates.
With the Chinese economy still growing at close to 10 per cent per year, the government can afford to take more short-term policy risk."
