The decision by the People’s Bank of China (PBOC) today to raise the benchmark one-year borrowing and lending interest rates by 25 basis points presents another complication for Wayne Swan in preparing this year’s Australian budget. A continuation of China’s recent growth at a rate of nine per cent plus is a vital component of Labor’s efforts to get our budget back into surplus in 2012-13. A slowdown in the Chinese economy that curbs the growth of coal, iron ore and mineral exports will make that target much more difficult to achieve.
The Chinese Xinhua newsagency reports that today’s central bank decision was the second time that China’s central bank raised the benchmark interest rates this year and the fourth such increase since the start of last year.
After the hikes, the one-year deposit interest rate will climb to 3.25 percent while that of the one-year loan interest rate will reach 6.31 percent.
Analysts said the move indicated that the central bank was enhancing efforts to ease stubborn consumer price increases.
The consumer price index (CPI), a main gauge of China’s inflation, jumped 4.9 percent in February from a year earlier, exceeding the government’s full-year target of 4 percent.
“It’s widely expected that the reading of March’s CPI will hit a new high. The interest rate rise is the central bank’s advance response to the pressure of rising inflation,” said Liu Yuhui, an economist with the Chinese Academy of Social Sciences, a government think tank.