China Raises Lending, Deposit Rates as Inflation Accelerates

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China raised its benchmark lending and deposit rates for the first time since 2007 after inflation accelerated to the fastest pace in 22 months.

The one-year deposit rate will increase to 2.5 percent from 2.25 percent, effective tomorrow, the People’s Bank of China said on its website today. The lending rate will increase to 5.56 percent from 5.31 percent, it said.

China’s inflation quickened to 3.5 percent in August, highlighting overheating risks that have prompted the government to curb credit and clamp down on the real-estate market this year. Higher interest rates may encourage inflows of speculative capital from abroad, complicating management of the fastest-growing major economy.

“Policy makers need to better anchor inflation expectations by boosting real interest rates,” Liu Li-Gang, a Hong Kong-based economist at Australia and New Zealand Banking Group Ltd., said before today’s release.

China last raised benchmark rates in December 2007, with central bank Deputy Governor Zhu Min saying on March 25 that rates are a “heavy-duty weapon” and alternative measures were working well.

Today’s move came after two surveys showed manufacturing accelerated in September and input prices jumped, signaling stabilizing growth and inflation pressures.

Global Recovery

“China would be wise to raise rates,” Dariusz Kowalczyk, a Hong Kong-based senior economist at Credit Agricole, said ahead of today’s announcement. “It has led the global recovery and yet is one of only a few emerging Asian nations that have not begun to reverse the steep rate cuts orchestrated during the crisis.”

Chinese officials are grappling with the risk created by last year’s record 9.59 trillion yuan ($1.4 trillion) credit boom that fueled the nation’s comeback from the global recession. China’s property prices in 70 cities rose 9.1 percent in September from a year earlier, according to the statistics bureau.

China will speed up the introduction of a trial property tax in some cities and then expand the levy to the whole country, the government said Sept. 29, without giving a timetable. The state also told commercial banks to stop offering loans to buyers of third homes and extended a 30 percent down payment requirement to all first-home buyers.

--Li Yanping. Editors: Paul Panckhurst, John Liu

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央行决定上调金融机构人民币存贷款基准利率
中国人民银行决定，自2010年10月20日起上调金融机构人民币存贷款基准利率。金融机构一年期存款基准利率上调0.25个百分点，由现行的2.25%提高到2.50%；一年期贷款基准利率上调0.25个百分点，由现行的5.31%提高到5.56%；