FX.co ★ China Again Raised the Base Rates

China has raised the base rates in the economy for the fourth time during the global financial crisis. As Bloomberg reports, since April 6th a one-year debt rate on the interbank market will be raised from 6.06 to 6.31 per cent, and a deposit rate – from 3 to 3.25 per cent.
China changes the base rates in order to retain the inflation: according to the statistics collected in February, 2011 the price growth rate during 12 months amounted to 4.9 per cent. Chinese government is going to reduce the inflation to 4 per cent by the end of the year.
In order to retain the inflation China regularly raises not only the base rates but also the reservation standards for commercial banks. Only in 2010 the reservation standards were raised sixfold; in 2011 they were raised two times– in January and February.
According to the prime minister’s words, inflation retaining is the main priority of the government in 2011. High prices absorb a significant part of Chinese economic growth which has been keeping at the annual level of 10% during several years already.
The base rates rising would reduce the amount of money in the economy because credits on the market will become less available. Base rates decrease usually causes the rise of the economy growth rate.