Econintersect: China has raised interest rates for the third time since October. Interest rate hikes are expected to continue throughout 2011 as China has made fighting inflation a priority. Key interest rates were increased by 0.25%. The one-year lending rate is now 6.06% and the interest paid on one-year deposits is 3%. In China both the lending rate and the deposit rates are defined by the PBoC (People’s Bank of China).
The increase was expected, as reported February 1 by GEI News, but the timing was a surprise. According to the Huffington Post:
The timing was a surprise, coming on the final day of China’s Lunar New Year holiday, but investors have long expected more monetary tightening as Beijing struggles to rein in price pressures and ward off a property bubble.
Although annual inflation slowed to 4.6 percent in December, it is expected to have picked up again in January with food prices soaring.
“It is the first interest rate rise in the Year of the Rabbit, but it will not be the last,” said Xu Biao, an economist with China Merchants Bank in Shenzhen, referring to the Chinese New Year, which began last week.
Fearing tighter monetary policy will dampen China’s demand, commodity markets fell after the central bank announcement. Three-month copper fell below $10,000 a metric ton and U.S. crude futures prices dropped.