China raises rates, shrugs off the coast of growth

Student listens to a speech at its graduation ceremony of Fudan University, Shanghai College, on July 2, 2011.

Credit: Reuters/Carlos BarriaBy Kevin Yao and Aileen Wang

BEIJING. Wednesday, July 6, 2011 10: 34 EDT pm

BEIJING (Reuters) - China has raised rates for the third time this year Wednesday, stating that tame inflation remains a priority, even though the pace of its extensive economic growth facilitates gently.

The increase of 25 basis points at the rate of loan and deposit emphasized quiet confidence of China that the world's second economy is flexible enough to support a more restrictive monetary policy and is not threatened by landing that some investors fear.

Analysts suggested China was close, or even at the end of a cycle of rate increases and the latest move was a pre-emptive strike before another big leap in inflation data next week emphasizes concern for applicants from low yields.

"The rising rates of today suggest that inflation in June China could be higher than expected and GDP in the second quarter remains strong, consistent with our expectations," said Ligang Liu, head of the economy of the greater China at ANZ in Hong Kong.

"The increase in rates will help it refine its monetary policy to alleviate the problem of interest rates real negative aggravation to prevent an exodus of deposits of the banking system.".

The last approach increases rates of loan one year China reference to 6.56 per cent and its deposition rate of a year of reference to 3.5%, says Central Bank.

Increases will take effect from Thursday, the Central Bank said in a short statement on its Web site.

Assets risky, particularly those with direct links to the growth of China, as the Australian dollar, sold following the announcement, in response to the concerns will that this monetary tightening latest stifle an already sluggish world economy.

Observers from China could not agree on whether there will be more rate rises in the second half of the year. Bank of China (PBOC popular) raised nine times banks reserve requirements in addition to these rate increases in its cycle of nine months of the tightening of monetary conditions.

"The battle of inflation in China is almost at an end. already, there are signs that come the pressure on prices," said Frederic Neumann, an economist at HSBC in Hong Kong. "" "". "Rising rates of today perhaps was the last in the cycle".

GROWTH FROM INFLATION

The hopes that it can be about a pause in the tightening was considered to be positive for stocks and could curb rising yuan swap rates on Earth. These expectations helped the Shanghai Composite Index bounce from nine-month lows hit in June.

The world's second economy expanded more than 10% the year past but cooled in 2011. The first quarter growth was 9.7% and data next week should show the pace relaxed to 9.4% in the second quarter.

Evidence grows that extensive China manufacturing sector is losing momentum, due to the political crunch at home and slowdown in demand from abroad.

A survey of purchasing managers showed the factory sector expanded at its lowest pace in 28 months of June, mainly due to the decline in new orders. Many analysts believe that the pace is part of an economy growing on average to about 9% and industrial growth of approximately 13%.

In addition, a two-digit wage increase should fuel already strong domestic demand.

With U.S. near zero interest rates, Beijing worries it could attract more hedge funds in China if it raises rates too far. That could exacerbate the problem of excess liquidity and fuel further inflation.

It is also, to allay depositors faced with a rate of real negative return on their money in banks.

Inflation in China is accelerated for a maximum of 34 months of 5.5% in may as of high food prices and an inflamed housing market maintained pressure on prices.

The forecasted data as a result of the election a Reuters on July 15 will show that inflation in June rose 6.3% - reading higher since mid-2008. Many economists believe inflation peak in June or July.

Beijing is particularly sensitive to the price increases that could stir social unrest and threaten his leadership.

Wang Jun, an economist at CCIEE, a Government think tank, said that Beijing might feel obliged to raise rates again if inflation, proved more stubborn than anticipated.

"If inflation comes down, no there is no need to raise rates." But if prices bounce, there could be more rate increases, he said.

(Written by Koh Gui Qing and Vidya Ranganathan;) (Editing by Ruth Pitchford and Neil Fullick)