Mon, December 27, 2010
Business > Economy

Rate hikes slip down chimney

2010-12-27 01:26:46 GMT2010-12-27 09:26:46 (Beijing Time)  Global Times

With a series of measures being adopted to curb inflation, the government is confident it can keep consumer prices in check, Premier Wen Jiabao said during a radio broadcast Sunday, one day after the central bank raised interest rates.

Mortgage interest rates were also raised by 25 basis points Sunday, the Ministry of Housing and Urban-Rural Development said.

The new rate for public housing fund mortgage loans longer than five years will be 4.30 percent, and 3.75 percent for those of shorter than five years.

"This will further increase the cost of home purchases and will, to some extent, curb investment demand in the property market," the official Xinhua News Agency cited Chen Ming, marketing chief of real estate 5i5j, as saying.

The timing of the rate hike was unexpected, but the maintenance of stable monetary policies was no surprise, Cheng Wenwei, head of research with Bohai Securities Co, was quoted by as saying.

After the rate hike went into effect Sunday, the one-year deposit and lending rates are 2.75 percent and 5.81 percent respectively.

The current deposit rate still lags behind the inflation rate, as measured by the consumer price index (CPI).

The CPI reading has been rising since mid-year, from 2.9 percent up to a 28-month high of 5.1 percent for November. The reading in December is projected to be slightly lower than November but still at a high level, making the whole year average consumer price growth higher than 3 percent, the official target set early this year.

The huge injection of cash into the market via government lending and stimulus measures is the major cause of rising prices.

For the first 11 months of this year, the banks released new loans amounting to 7.47 trillion yuan ($1.13 trillion) following last year's 9.59 trillion yuan ($1.44 trillion), making the broad money supply growth estimated to surpass the 17 percent pre-set target this year following last year's 27.7 percent growth.

The government probably wouldn't make aggressive interest rate hikes next year because Beijing still sees growth as the top priority, said Lu Ting, China economist with Bank of America - Merrill Lynch.

The central bank chose to push the reserve requirement ratio up six times this year to a historic high of 18.5 percent for large commercial banks.

There would be more rate hikes next year, Lu Zhengwei, a senior economist with Shang-hai-based Industrial Bank said in an email to the Global Times.

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