MercoPress. South Atlantic News Agency

China hikes rates to curb inflation and cool economy

The People's Bank of China (PBC) ordered Friday an increase of 0.27% of a point in commercial banks' benchmark one-year deposit and lending rates to keep inflation in check. The increases will take effect on 21 July and is the fifth since April 2006.

This means the one-year benchmark deposit rate will move to 3.33% from 3.06%, while the one-year lending rate will rise to 6.84% from 6.57%. The move comes a day after data showing that China's economy outstripped analysts' expectations during the second quarter, growing by 11.9% from a year before. On Thursday, Beijing said it would "improve macro controls" to rein in the economy. The rapid growth has pushed inflation to a 33-month high of 4.4% for the year to June. A boom in production, fuelled by strong exports and investment, is contributing to the inflationary risks the country now faces. Zhang Yongjun, economist at the state information centre in Beijing said: "I think the rate rises could curb the rapid investment growth and credit expansion to a certain degree. "But it's far from enough. The current interest rates are still low and real deposit rates are in negative territory." Others said the move was widely expected, but would not be enough to curb inflation. The PBC said the rate adjustment would help to "guide reasonable growth of credit and investment, adjust and stabilize expectations about inflation and maintain basic stability of general price levels.