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China Raises Lending, Deposit Interest Rates by 25 Basis Points

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For the second time in two months, China’s central bank raised interest rates in an effort to tighten the reins on inflation.

The Xinhua news agency said the People’s Bank of China (PBOC) bumped up the benchmark lending rate by 25 basis points to 5.81%, with the benchmark deposit rate also up 25 basis points to 2.75%.

Earlier in December, China had announced a shift in policy from “moderately loose” to “prudent,” and had also extended a special increase in the reserve requirement ratio (RRR) for six of China’s biggest lenders.

Another point of focus for Beijing is the country’s housing sector, where rising prices have made officials wary of bubbles. In an effort to hold back speculation, the country is using both monetary policies and stricter provisions for use of land. In addition, plans are to build 10 million units of affordable housing in 2011. In 2010, the target was 5.8 million.

While such measures and the prospect of more inflation-fighting tactics from Beijing have caused Chinese stock markets to drop almost 10% since mid-November, analysts believe that Monday’s market could see higher returns because of overall share optimism for 2011.

However, China’s Premier Wen Jiabao said in a state radio broadcast on Sunday, “We have raised reserve requirement ratio for six consecutive times and increased interest rates twice to absorb excess liquidity in the market to keep it at a reasonable level to support economic development.” He added in remarks published on, “I believe we can keep prices at a reasonable level through our efforts. As a major leader of the government, I have the responsibility and I have the confidence, too.”


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