China Ups Interest Rates, Anti-Inflation Fight

Another twist of the anti-inflation ratchet: The People’s Bank of China says it will raise its benchmark one-year lending rate to 6.06% from 5.81% from February 9th. Its  one-year deposit rate will rise to 3% from 2.75%. It is the third hike in interest rates since October. The relatively larger increase in the deposit rate suggests the central bank is trying to reverse the negative real savings rate, though it is moot whether that will make bank deposits a preferable investment to real estate or equities for most Chinese.

With consumer price inflation not having peaked last November  as hoped but estimated to have risen again in January to 5.3% from 4.6% in December and the economy growing robustly the central bank has the scope to step up its fight against inflation. More step rate rises and increases in the banks’ capital reserve ratios this year are a racing certainty. So, to our mind, is greater use of yuan appreciation as an anti-inflation tool. We expect the benchmark lending rate to be kicking 7.0% by year’s end, and the yuan to have appreciated by 10% in real terms.

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2 responses to “China Ups Interest Rates, Anti-Inflation Fight

  1. Pingback: FAO Voices Concern At Drought In China’s Grain Belt | China Bystander

  2. Pingback: However You Mix The Basket, China’s Inflation Persists | China Bystander

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