Tuesday, August 21, 2007

China Makes Fourth Interest Rate Hike This Year

China raised interest rates on Tuesday for the fourth time this year to stabilize inflation after consumer prices rose in July at the fastest pace in more than a decade.

The People's Bank of China said it was raising the rate that banks pay for one-year deposits by 27 basis points, to 3.60 percent, and the corresponding benchmark for lending rates by 18 basis points, to 7.02 percent from 6.84 percent.

Although the timing was a surprise, the action itself was not despite turbulence in global markets that has prompted the Federal Reserve to cut its discount rate and hold out the prospect of a reduction in the federal funds rate.
Most economists had forecast an increase, both to anchor inflationary expectations and to reduce the incentive for savers to take their money out of the bank -- where real deposit rates are deeply negative -- and pile into the surging stock market.

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