China Monetary Policy


Central Bank hikes rates in response to inflationary pressures

On 6 July, the People's Bank of China (PBOC) hiked interest rates for the third time this year in order to contain inflation, which has surged to the highest level since July 2008, amid resilient economic activity. The PBOC has raised rates by 125 basis points since monetary authorities began withdrawing the policy stimulus in October 2010. Monetary authorities decided to raise the benchmark interest rate by 25 basis points to 6.56% for one-year loans and to 3.25% for one-year deposits, decisions that were broadly expected by the market. In the second half of the year, inflation is expected to ease due to a favorable base effect but will remain elevated. Analysts consider that the PBOC will have to carefully tackle inflation expectations along with slowing economic activity going forward, given that either soaring inflation or faltering economic growth may trigger social unrest.

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