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PBOC Hikes Interest Rate

On February 8, 2011, the People’s Bank of China announced that, effective February 9, it will raise the benchmark interest rate by 0.25%; the one-year deposit rate will be 3%; and the one-year lending rate will be 6.06%. Scholars suggest this increase is due to the pressure of high inflation and the real estate bubble. They expect that 2011 will bring even more rate hikes.

Ba Shusong, Deputy Director of the Financial Research Institute, Development Research Centre of the State Council, stated that China will adopt a monetary tightening policy in 2011. Ba outlined three causes for the rate increase: 1. A rapid increase in loans in January 2011, which some estimated at 1.2 trillion yuan. 2. Consumer product price increases due to weather and the Chinese New Year. 3. Continuous price increases for commodities overseas.

China News Service
referred to the central bank’s monetary policy report, which was released before the Chinese New Year. The report stated it would "use ‘society’s total financing amount’ to measure the scale of financing." China News Service interpreted this to mean, "PBOC does not look just at ‘RMB loans,’ but also at corporate bonds, stock, trust loans, and entrusted loans, etc. for deciding on monetary tightening."

1. People’s Bank of China Website, February 8, 2011
2. China News Service, February 8, 2011
3. China News Service, February 8, 2011