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China raises interest rates and subsidizes pork farmers

Thursday, December 20th 2007 - 20:00 UTC
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China's People's Bank (central bank) has raised interest rates for the sixth time this year, adding to its efforts to cool the country's surging inflation. The benchmark lending rate will rise to 7.47% from 7.29% with effect from Friday, while the main deposit rate will increase to 4.14% from 3.87%.

Chinese inflation reached 6.9% in November, its highest level since 1996. Higher borrowing costs and ten increases in banks' reserve requirements have failed to cool the economy. It's the third time this year that China has raised deposit rates by more than lending rates, encouraging people to save instead of speculate on property or stocks in an attempt to curb asset-price gains. Separately, Beijing has promised to double subsidies for pig farmers to ensure pork supplies and lower prices. Soaring food costs, and especially the price of pork which is up 56% in the past year, have been blamed for driving the main inflation rate to an 11-year high in November. China's pork output fell this summer due to higher feed costs, and after disease led to a livestock cull. The government has said it will pay farmers a subsidy of 100 Yuan 13 US dollars for every fertile sow next year. On Wednesday, the government vowed to spend 2.5bn Yuan next year to help farmers build "standardized, large scale" pig farms, the Xinhua News Agency said. Beijing also decided to extend sow insurance, which was launched in August to cover losses from diseases and natural disasters, to "as many sows as possible". The government also said it would release part of its corn reserves to the market to reduce food inflation pressure, Xinhua said. The last interest rate rise was introduced in September. "Given the background of upward pressure in domestic prices... and in order to guide the public's expectations about inflation, we have put into play price adjustment tools," the central bank said. China's economy, among the world's largest, expanded 11.5% in the third quarter from a year earlier. But growth is likely to slow to 10.5% in 2008 from 11.4% this year on tightening measures, the Asian Development Bank said this month. The Organization for Economic Co-operation and Development forecasts a decline to a 10.7% pace on reduced demand for exports.

Categories: Economy, International.

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