China interest rates up again

BEIJING: China’s central bank on Saturday raised interest rates for the second time in three months as authorities’ ramp up efforts to curb borrowing, rein in property prices and tame inflation.

The People’s Bank of China said in a brief one-line statement that it will raise the one-year lending and deposit rates by 25 basis points each. The move takes the rates to 5.81 percent and 2.75 percent respectively from Sunday. In October, policymakers raised rates for the first time in nearly three years as they resort to stronger measures to try to slow a flood of liquidity which has been fanning inflation and driving up property prices.
Analysts said the latest interest rate hike would be followed by more next year as stability-obsessed leaders step up efforts to calm growing consumer anxiety about rising costs.
“The choice of Christmas Day is a little surprising but I think the market generally expected interest rates to rise,” Ken Peng, a Beijing-based economist for Citigroup, told foreign media.

“The central bank needed to do this to win credibility to fight inflation.” Ever fearful of inflation’s potential to spark unrest, authorities have been pulling on a number of policy levers to rein in consumer prices and cool the red-hot real estate market. Earlier this month, the central bank ordered lenders for the sixth time this year to keep more money in reserve, effectively limiting the amount of funds they can lend.
Despite these measures, bank lending has remained stubbornly high and property prices have continued to rise, frustrating first-home buyers who feel apartment prices are out of their reach.
Property prices in 70 major cities recorded their third straight month-on-month rise in November, defying Beijing’s attempts to cool the red-hot market by hiking minimum downpayments and ordering banks not to provide loans for third home purchases.
Prices were up 0.3 per cent last month from October and 7.7 per cent higher than a year ago.
The value of new loans issued by China’s banks fell in November from October but was still well above forecasts as Beijing struggled to stem the flood of liquidity.
Adding to the Beijing’s headaches, the consumer price index, a key measure of inflation, topped five per cent in November for the first time in more than two years as food costs soared nearly 12 per cent year-on-year. Further interest hikes had been expected after top leaders pledged earlier this month that China would move from a “relatively loose” monetary policy to a “prudent” one next year.

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