China Reining In Economic Growth

By Stewart Douglas

China has today increased its interest rates to the highest level in almost 3 years.

China, boasting the world’s fourth largest economy, has posted growth across the economy of 11.9% - significantly outstripping any other economy in the developed world.

With extreme growth in any economy comes the major danger of inflation, ultimately leading to international economic struggles and devaluing the currency significantly.

One of the foremost corrections methods available to central banks is interest rate manipulation, and the Chinese increases are designed specifically to rein in the likelihood of inflation taking its course.

The Chinese central bank PBC has implemented a 0.27% increase in commercial bank lending rates to make commercial financing more expensive in a bid to slow down the rampant economic growth across the region.

By hampering commercial borrowing, it is hoped that economic growth can be kept under control to prevent further inflation over the coming month.

Inflation in the Chinese economy has risen to 4.4% - almost 2% above the UK rate of inflation.

The main inflationary threats can be put down to increasing exports and a strengthening manufacturing sector.

The interest rate rise has signaled an ongoing trend towards keeping inflation under control, and experts suggest that more rises are inevitable if inflation is to be maintained or slowed in any way.

The PBC, or People’s Bank of China, expects the recent round of interest rate increases to help guide inflation in the right direction. 

However, it seems that this is not the last of Chinese interest rate rises, as the almost inevitable inflationary pressures further their influence on the Chinese economy.

The recent interest rate increases are the sixth over the last year, as China looks to somehow catch up with its recent overwhelming growth.