China's central bank announced yesterday an increase in its benchmark lending rate to ensure "sustainable" economic growth, in a move seen as an effort to cool the nation's fast-growing economy.
The one-year benchmark lending rate will increase by 0.27 percentage points to 5.85 percent today, the People's Bank of China said in a statement on its Web site.
"All other loan rate categories will be adjusted accordingly," the bank said, adding that deposit rates would remain unchanged.
The rate increase was the first since October 28, 2004, when the benchmark lending rate was increased to 5.58 percent and the one-year deposit rate was increased to 2.25 percent, both by 0.27 percentage points.
There had been speculation that China would tighten monetary policy after first quarter figures released last week showed the economy grew a faster-than-expected 10.2 percent, sparking fears of overheating.
The rate hike "was made in an effort to strengthen macroeconomic controls and maintain the overall trend of a sustainable, fast-paced, coordinated and healthy economic development," the central bank said.
"The People's Bank of China calls on all financial organs to strictly carry out the interest rate policy and strengthen interest rate supervision," it said.
While the central bank rate increase is intended to discourage lending in general, the government has also taken more targeted measures in sectors where growth appears to be outstripping demand.
Investment controls have already been imposed on the aluminum, ferrous alloy, coke and cement industries. The auto industry will be next, He Yan-li, a vice director at the National Development and Reform Commission, a key economic agency, said yesterday. He said the auto industry controls would be imposed soon.
"They want to pre-empt the likelihood that investment becomes a little overheated," Tim Condon, a Singapore-based economist monitoring China for ING Barings, said in reference to the announcement.
"They are not saying that investment is overheated now, but they are concerned by the excessive liquidity in the banking system that could be potential fuel for an investment boom."
Besides the one-year benchmark rate, the central bank also raised the six month lending rate to 5.4 percent, while interest on loans extending from one to three years rose to 6.03 percent and to 6.12 percent on loans extending three to five-years.
Interest rates on loans extending over five-years also rose to 6.39 percent.
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