Economists expect interest rate hike in September
17 August 2007
China is likely to raise interest rates for a fourth time this year by the end of September, according to a survey of economists conducted by Bloomberg. Most respondents expected the benchmark one-year lending rate to rise to 7.11% from 6.84% and the deposit rate to rise from 3.3% to 3.6%. The interest rate hike is seen as the logical response to the consumer price index hitting 5.6% in July, its highest level in 10 years, and the M2 broad money supply expanding 18.5%, its fastest growth in 14 months. Household savings fell by US$1.2 billion in July from the previous month, a move which has prompted China to reduce the tax on interest income to 5% from 20%. Most economists expect the banks' required reserve ratio to rise to 12.5% from 12% before the end of the year. Reserve ratios have already risen six times in 2007. Urban fixed-asset investment increased 26.6% in the first seven months compared to a year earlier.
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