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Sat, Aug 19, 2006 - Page 10 News List

China's central bank raises interest rates, mulls currency move


China yesterday raised interest rates for the second time this year amid efforts to rein in a boom in lending and construction that the government worries could spark a financial crisis.

The People's Bank of China, the central bank, said on its Web site that it had ordered an increase of 0.27 percentage point in commercial banks' benchmark one-year deposit and lending rates, effective today.

The central bank raised lending rates by the same margin on April 27 but kept deposit rates unchanged.

Since then the central bank has also increased the proportion of deposits banks must hold in reserve, instructed banks to curb lending to specific sectors and sucked more money out of the banking system through open market operations.

Powered by investment and exports, annual GDP growth quickened to 11.3 percent in the second quarter from 10.3 percent in the first three months.

The one-year deposit rate is now 2.52 percent and the one-year lending rate stands at 6.12 percent.

Meanwhile, the central bank may widen the yuan's trading band amid rising economic pressures and as currency fluctuations approach the daily limit, state media reported yesterday.

The China Securities Journal, one of the most authoritative financial newspapers in the state-run press, reported the potential moves by the People's Bank of China (中國人民銀行) in a front-page story.

The report said there was an urgent need to widen the trading band -- the yuan is allowed to move 0.3 percent on either side of a daily mid-point set by the central bank -- for a wide range of trade and economic reasons.

"China's trade surplus has hit record highs in the three consecutive months to last month, making the need to further expand the yuan trading band an urgent matter," the paper said, citing an unnamed analyst.

China's trade surplus soared over 40 percent year-on-year to US$14.61 billion last month, bringing the seven-month figure to US$75.95 billion, up nearly 52 percent from the same period last year.

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