China May Raise Interest Rates in 2010 as Economy Accelerates
China is likely to raise interest rates in 2010 as a recovery strengthens in the world’s third- biggest economy, a Bloomberg News survey shows.
The key one-year lending rate will climb 54 basis points next year to 5.85 percent, according to the median forecast of nine economists. The deposit rate will rise by the same margin to 2.79 percent.
Record new loans of more than $1 trillion in the first half of this year drove a rebound in China’s economic growth to 7.9 percent in the second quarter from a year earlier, government figures showed yesterday. The central bank will keep interest rates unchanged at a four-year low for the rest of this year to cement the recovery, the survey showed.
“Interest-rate hikes can be ruled out for the rest of this year because the global economic situation still isn’t clear and Chinese policy makers need to stay in a cautious mode,” said Sherman Chan, an economist with Moody’s Economy.com in Sydney.
The survey was compiled after the government released second-quarter gross domestic product figures in Beijing yesterday. The first-half economic expansion laid the foundation for meeting the government’s 8 percent growth target for the year, the statistics bureau said.
The central bank is using bill sales to drain cash from the financial system and push up money-market rates, countering record growth in money supply that threatens to create bubbles in stocks and property payday loan online. The Shanghai Composite Index has climbed 75 percent this year.
Failed Debt Sales
The finance ministry didn’t meet its target in a debt sale today, the third failure in two weeks. Demand for debt is cooling after new share sales resumed this month and as investors favor assets that benefit most from the recovery.
Most economists said reserve requirements, which specify the proportion of deposits that lenders must park with the central bank, will increase in 2010 after staying unchanged this year. The ratio is 15.5 percent for big banks and 13.5 percent for small lenders.
A previous Bloomberg News survey this month showed economists were split on whether interest rates would rise in 2010 or stay unchanged. They were also divided then on the outlook for reserve requirements.
While money supply is surging, consumer prices are continuing to fall in China, declining in June for a fifth straight month. “Monetary factors” have yet to add pressure for prices to rise, the statistics bureau said in a commentary published today.