September 15, 2007	Saturday	Ramazan 2, 1428

BEIJING, Sept 14: China’s central bank announced on Friday its fifth interest rate hike this year, after a slew of data showed the world’s fourth-largest economy was still racing ahead with inflation at a decade high.

Both deposit and lending rates would rise by 27 basis points on Saturday, in a bid to “strengthen credit management, bring about reasonable growth in investment and stabilise inflationary expectations,” the central bank said.

“The fact that this rate hike came within one month after the last rate hike, on Aug 21, indicates a stronger will of the authorities to use market-oriented tools to manage the economy,” said Hong Liang, an economist with Goldman Sachs.

After the hike, the key one-year lending rate will be 7.29 per cent, up 117 basis points from last year, while the one-year deposit rate will stand at 3.87 per cent, up 135 basis points from late 2006.

The move comes after data was released this week showing the economy was still racing ahead, with the consumer inflation rate at 6.5 per cent in August, the highest in more than a decade.

One of the main worries of policymakers is the fact that high inflation pushes real interest rates into negative territory.

This means that people lose out by putting money in banks, preferring to invest in stocks and real estate, conjuring up the spectre of a devastating asset bubble.

The trouble is that even after the rate hike, bank savings will still imply an annual loss of about three per cent.

“Under the circumstances, 27 basis point hikes don’t have enough of an impact on the financial market,” said Yi Xianrong, an economist at the Chinese Academy of Social Sciences, the nation’s top think tank.

“With a negative interest rate, the central bank should speed up the frequency and enlarge the range of the interest rate hikes.” China said earlier on Friday urban fixed asset investment rose 26.7 per cent in the first eight months of 2007 compared with a year earlier. Economists said this implied a 27.3 per cent rise in August alone.

Even after this weekend’s rate hike, the chances are the Chinese juggernaut will rumble on.

“Overall, the economy is expanding fast, and liquidity has not been brought under control at all,” said Xue Hua, a Shenzhen-based economist with Merchants Securities.

Xue estimated growth this year in the world’s fourth-largest economy would hit 11.3 per cent, making 2007 the fifth consecutive year of double-digit expansion.

The economy grew at 11.9 per cent in the second quarter of this year and 11.5 per cent in the first half.

Economic growth in the 1.3-billion-people economy is helped enormously by a trade surplus which, according to data released earlier this week, hit a near-record $24.97 billion in August.

While foreign trade gets most of the attention, investments form the crucial other part of the equation, and the data published on Friday revealed where some of the trouble spots are.—AFP