China raises rate fourth time since October to tame prices

April 05, 2011, 9: 17 am EDT by Bloomberg News

(Updated by adding a comment by the Economist on yuan policy in the seventh paragraph).

April 5 (Bloomberg) - China raised the interest rate for the fourth time since the end of the global financial crisis to limit inflation and reduce the risk of bubbles in the major economy to the more rapid growth.The one-year lending rate benchmark will to 6.31% of 6,06%, tomorrow, effective, the Bank of China said on its Web site at the end of the national holiday. One-year deposit rate stands at 3.25% 3 p. 100.Le move is a surprise to some, after the Credit Switzerland Group AG, Morgan Stanley and Bank of America-Merrill Lynch said officials may pause in tightening. While the Japan disaster and with Europe's debt woes are clouding the global Outlook, the Government of Prime Minister Wen Jiabao is more focused on 5 percent jump about consumer prices last month, said analyst Shen Jianguang.It "very important" this rate of China raised until March inflation data have even been announced, said Shen, an economist based in Hong Kong to Mizuho Securities Asia Ltd., who worked previously for the Monetary Fund International and the Central Bank European. "It's a good preemptive blow."Crude oil extended its decline. Oil for delivery in may on the New York Mercantile Exchange dropped as much as 97 cents to $107.50 US per barrel and was at $107.95 to 12: 45 p.m. in London. ' Hot Money' ConcernChinese officials can be warned against an increase in inflows of "hot money", or hedge funds, as the move of today widens the rate differential in the developed economies. In the United States, the Federal Reserve kept its benchmark near zero since December 2008.Qu Hongbin, Chief Economist for HSBC Holdings Plc in Hong Kong China, said that a policy of "progressive" yuan appreciation probably remained intact. The Chinese currency, described by the United States as "substantially undervalued", won 4 percent against the dollar in the year past and touched 6.5452 on April 1, the strongest since 1993.Premier Wen last month level described inflation as "a tiger" defined once free will be difficult to cageet also as a potential threat to the social stability. Increases "Exorbitant" home prices in some cities are of large public concerns, said.Inflation in China accelerated to 5.2 per cent last month, the fastest pace since July 2008, the median estimate in a Bloomberg News of nine economists survey. Consumer prices jumped 4.9% in February from the previous year, the target of the Government throughout the year of 4 per cent in mind. "Announcement of not too Worried'Today contrasts with the central bank Deputy Governor Yi Gang said March 23 that interest rates were at a"comfortable"level and that he was"not too concerned"by inflation because the price increases will slow down in the second half of the year. The interest rate move may be the sign of the confidence of the Government in the strength of economic forecasts by the World Bank to extend 9 per cent this year.Index of managers purchase released 1 April stated that the world's second economy "is growing smoothly, with only a very moderate slowdown," Economist of Bank of America-Merrill Lynch that Ting Lu said this day there.Rising oil and fresh products and sustained economic growth can encourage the nations of Asia to keep boost borrowing costs even while the Japan is facing an economic contraction following a record earthquake last month. Viet Nam, Taiwan, India, South Korea and the Thailand raised rates of reference in March or April and Chinese officials have also drained cash of their economy by increasing the Bank requirements of the reserve.Loan key to the ForecastsChina of the economists will to 6.56% by the end of the year, with the rate of deposition of climbing at 3.5%, according to the median of forecasts in a survey of Bloomberg News of economists on March 22. One might think a further increase of 0.25 percentage point in each.Monetary tools, the Government has deployed grants, State of food reserves and the threat of the control of prices to counter inflation. Unilever, manufacturer of second of consumer in the world, reported increases in prices provided at the request of the Government.The rate of deposition of a reference year is lagging behind the pace of consumer price gains, an incentive for households switch assets market economies, increasing the risk of bubble in the housing market.

-Marco him in Hong Kong, Zheng Lifei in Beijing. With the help of Ed Lococo, Jay Wang and Sandy Hendry. Editors: Paul Panckhurst, Kevin Costelloe.

To communicate with the staff of Bloomberg News for this story: Lifei Zheng to Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong to the ppanckhurst@bloomberg.net

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