Central Bank Announced Third Interest Rate Hike of the Year

China’s central bank announced Wednesday the third interest rate hike of the year, this increase in rates by 25 basis points will be effective from Thursday. The central bank released a brief statement on its website, while the fight against inflation is the government’s top priority.

The third increase, after those taking place in February and April, which is also the fifth since October, is once again to fight against inflation and control the volume of loans granted by banks.

The two reference rates are the rate of deposit and borrowing rates at one year, which are carried respectively to 3.50% and 6.56%, the central bank said in a statement.

The rate hike, expected for several weeks by the markets, came after a speech by Premier Wen Jiabao saying that the fight against rising prices is a priority objective of the government.

China’s consumer price index (CPI) rose 5.5 percent year-on-year in May, the highest level since July 2008, and most analysts expect that its level is even higher in June, before getting down in the second half year.

Beijing may be cautious before continuing to raise rates in the future because the signs of a slowing Chinese economy is growing, including a sharp slowdown in the growth of auto sales and a significant increase of unsold new properties.

“The market has recently shared the view that economic growth weakens in China,” said Mark Williams of Capital Economics in London.

However, “higher borrowing rates are not a big difference in practice” in China, adds the analyst, pointing out that “borrowing rates are still relatively low compared to the pace of economic growth.”

“The impact on the market should be quite limited,” said Lu Ting, an economist at Bank of America-Merrill Lynch, which no longer expects to other rate hikes before the end of the year.

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