China Hikes Interest Rates

By: By Chris Isidore, senior writer
By: By Chris Isidore, senior writer

NEW YORK (CNNMoney.com) -- The People's Bank of China raised its benchmark interest rates by a quarter-percentage point early Tuesday, the first hike since December 2007.

Unlike rate change statements from the U.S. Federal Reserve, the Chinese central bank's statement did not give any reason for the move, nor any commentary on its economic forecast.

But China's economy has been growing rapidly even as western economies remain mired in sluggish growth. China's gross domestic product, the broadest measure of the economy, grew at an 10.3% annual rate in the second quarter, compared to the 1.7% rate in the United States.

The rapid growth in China has resulted in sharp rises in wages, food prices and real estate. Consumer prices rose 3.5% in August, led by a 7.5% rise in food prices. And the Chinese government reported this week that overall real estate prices were up 9.1% in September compared to a year ago in the nation's 70 largest cities.

Higher interest rates are a typical step central banks take to slow those kinds of increases.

In the United States, the Fed has kept interest rates near 0% since December 2008 and is widely expected to announce new asset purchases next month in an effort to spur the U.S. economy.

China's actions shook financial markets in Europe and the United States, as the growth in China has become an important component to keeping the global economic recovery on track. All major stock indexes in Europe turned lower on the news announced after the close of Asian markets, while U.S. stocks opened sharply lower.

China's benchmark rates are not an overnight lending rate as is the case in the United States and other major western economies. Instead, it has a one-year interest rate on saving deposits, which increased to 2.5% and a one-year interest rate on loans, which rose to 5.56%.

-- CNN's Nini Suet in Hong Kong contributed to this report.

The-CNN-Wire/Atlanta
TM & © 2010 Cable News Network, Inc., a Time Warner Company. All rights reserved.


Comments are posted from viewers like you and do not always reflect the views of this station.
powered by Disqus
631 SW Commerce Pl. Topeka, Kansas 66615 phone: 785-272-6397 fax: 785-272-1363 email: feedback@wibw.com
Gray Television, Inc. - Copyright © 2002-2014 - Designed by Gray Digital Media - Powered by Clickability 105257478