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[.Blizzard]

China raises interest rates effective Sunday - click here

BEIJING, March 17 (Reuters) - China's central bank said on Saturday it would raise both its lending and deposit rates by 0.27 percentage points, effective on Sunday, to bring investment and credit growth in check and help balance the economy.

The one-year benchmark yuan deposit rate would rise to 2.79 percent from 2.52 percent. The one-year benchmark lending rate is to rise to 6.39 percent from 6.12 percent.

It is the third time the central bank has raised interest rates since last April. It has also raised banks' required reserves five times since last June, to help soak up liquidity generated by the country's large balance-of-payments surplus.

"The rate increase is conducive to the reasonable growth of credit and investment, to stabilising prices, to the stable operation of the financial system, to balancing growth and improving the structure of the economy, and to promoting the healthy but rapid development of the economy," the central bank said in a statement on its Web site (www.pbc.gov.cn).

Economists had widely expected the People's Bank of China to take further tightening measures soon following a batch of strong economic data for February that showed credit surging, factories rapidly expanding output, and exports growing 50 percent from a year earlier.

However, many of them had expected the central bank to wait a bit longer to carry out another interest rate rise.

"The timing is a surprise although I had been expecting an immediate interest rate rise by the end of the month," said Zhu Jianfang, chief analyst at China Securities in Beijing

"The recently published economic indicators for last month are feverishly high and the central bank needs to raise the cost of money in order to contain inflation and curb credit expansion," he said.

Banks extended 981.4 billion yuan ($127 billion) of loans in the first two months of 2007, about 30 percent of the yuan credit offered in the whole of last year.

The official Financial News said in a front page editorial on Thursday that China's rapid loan growth warranted tightening steps to prevent the economy from overheating.

"In order to avoid a rebound in fixed-asset investment and to reduce potential risks in the financial system, the central bank might need to introduce further tightening measures to mop up liquidity and contain credit expansion," the paper said. ($1=7.736 yuan)

[fib_1618]

The one-year benchmark yuan deposit rate would rise to 2.79 percent from 2.52 percent.

So, China's one year "T-Bills" are rising to 2.79%, and the stock market has nearly doubled in the last 6 months??

Even if the Shanghai were to appreciate by 10% for the remainder of this year (gasp!), it would seem to me that money would probably continue to seek out areas of greater appreciation than that of measly 2.79% return....hardly bearish.

Fib

[arbman]

Funny, the decisions would be made over a weekend when the markets are closed...

[jmicou]

Posted this a little while ago at TW: By the way, watch the wire today for an announcement that China will allow financial futures and options trading as of April 15th. Previously, it was only for commodities. The new regulations are fairly expansive. This would not seem to be bearish.