China raises interest rates by 0.27%
(Reuters)
Updated: 2006-08-18 18:47
Since April, the Chinese 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.
Government ministries have weighed in with strict orders to local authorities
to rein in capital spending. Three senior officials in Inner Mongolia were
punished this week for flouting Beijing's orders.
Powered by investment and exports, annual gross domestic product growth
quickened to 11.3 percent in the second quarter, the fastest pace in a decade,
from 10.3 percent in the first three months.
By increasing yields on the yuan the rate rise will encourage companies and
individuals to get round the country's currency controls and bring more money
into China.
To Zhong Wei, an economist at Beijing Normal University, this is a strong
pointer that the authorities are willing to allow a faster rate of climb in the
yuan, which has been allowed to rise just 1.7 percent since it was depegged from
the dollar in July 2005.
"The rate move indicates that the pace of the yuan's appreciation will
significantly accelerate this year," he said.
But Richard McGuire, a strategist at RBC Capital Markets, disagreed: "A
change in interest rates in China is a signal that it's unwilling to change its
forex policy."
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