Chinese banks increase lending rates

27 Dec '10

2 min read

The People's Bank of China announced on December 25 that the benchmark deposit and lending interest rates of financial institutions will be raised from December 26, one-year's deposit and lending rates will increase by 0.25 percentage points, respectively.

This is the second time that the People's Bank of China has raised interest rates during the year, and the first time, since the Central Government announced the implementation of prudent monetary policy.

After the hike, one-year's deposit rate have now touched 2.75 percent, one-year's lending rate is now 5.81 percent. Other benchmark deposit and lending rates have been adjusted accordingly. The demand deposit interest rate is unchanged at 0.36 percent.

Compared to 5.1 percent of annual CPI growth rate in November, the interest rate hike remains inadequate. The interest hike does not change the fact that deposit rate has been lower than CPI growth rate for 11 consecutive months, the situation of real negative interest rate has not changed yet.

In practice, the role of negative interest rates has created a big shift in savings and deposits. In October alone, savings fell 700.3 billion Yuan, which was rarely seen in history.

Analysts believe the move will play the role to stabilize depositor's mind and ease expectations of social inflation to a certain extent.

Statistics show that the central bank raised interest rates twice this year on October 20 and December 26, while the previous rate adjustment was done in December 2008, when interest rates had declined.

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