China raises benchmark interest rate by 0.27 percent

The People's Bank of China (PBOC) announced on Friday that it will raise the one-year benchmark interest rate by 0.27 percent from August 19.

The one-year deposit rate is raised to 2.52 percent and the one-year loan rate to 6.12 percent, according to the central bank.

The central bank raised the loan rates by the same margin in late April but did not change the deposit rates.

China's economy surged by 10.9 percent in the first half of 2006, the fastest in a decade, driven by fast credit loans growth and excessive use of land for industrial projects.

The central bank raised commercial banks' deposit reserve ratio earlier this week by 0.5 percent to rein in excessive bank lending.

To allow market forces a bigger role in deciding the interest rate for housing mortgage loans, the central bank decided to lower the bottom line of housing mortgage loans from 0.9 times the benchmark interest rate to 0.85 times.

For other commercial loans, the bottom line will remain 0.9 times the benchmark rate.

Raising the interest rate will help rationalize the growth of investment and loans, force businesses and financial institutions to properly assess risks, maintain price stability and promote the change of the country's growth model, a spokesperson of the central bank said.

Source: Xinhua