COMBINED NEWS SERVICES
Published: February 8, 2011 05:51PM.
China’s central bank raised interest rates for the second time in just over a month in a bid to ease high inflation and guide blistering economic growth to a sustainable level.
The People’s Bank of China announced Tuesday on its website that the benchmark 1-year deposit rate would rise by a quarter percentage point, to 3 percent, and the 1-year lending rate would increase by the same amount, to 6.06 percent. The increases are effective Wednesday.
Its previous rate hike came on Christmas Day, when the bank raised both benchmark rates by a quarter point. China’s leaders have sought to cool surging inflation that could pose a threat to political stability.
Rising prices are especially sensitive in a country where poor families can spend up to half their incomes on food. Higher incomes have helped to offset price hikes, but inflation undercuts economic gains that help support the ruling Communist Party’s claim to power.
Tuesday’s announcement, which is the third rate hike since October, dragged European stock markets lower. Asian markets were already closed. U.S. investors took the action in stride, as the Dow Jones industrial average closed higher for the seventh consecutive day Tuesday. That’s the longest series of gains for the index since July. Many large investors worry that slower Chinese growth could affect the United States, Australia and other economies by cutting demand for their exports of iron ore, machinery and other goods.
Inflation in China jumped to a 28-month high of 5.1 percent in November before moderating in December, but it has worried leaders who fear that a sharp rise in living costs could trigger unrest. Inflation has been sticking well above the government’s target of 3 percent.
China’s battle with inflation marks a sharp contrast with the United States, Europe and Japan, where growth has been muted in the aftermath of the financial crisis.
China’s rapid rebound from the global recession saw its economy, the world’s second largest, growing at a double-digit rate — a blistering expansion that slowed by the end of last year.
Analysts expect growth to slow further this year from 2010’s expansion of 10.3 percent as Beijing clamps down on credit and tries to prevent inflation, which has been largely confined to food and property, from spreading to other areas.
© 2011 The Salt Lake Tribune
