Summary
China moved to tackle a surge in new bank loans and investment on April 27, 2006 by lifting the benchmark lending rate by 0.27 per cent.
The increase resulted in a sell-off by Asian investors worried that the rise signalled a slowdown in the Chinese economy.
Analysis
China's GDP growth at 10.2% in the first quarter of 2006 is too strong and well above a more sustainable 8% target. The People Bank of China raised the annual lending rate from 5.85% to 5.58%, which is the first increase since October 2004. The deposit rate is unchanged to stimulate consumption. Although Asian stock markets dropped sharply on April 28, the impact on China's economy and on Asia's economy as a whole should be moderate. However, it is important for global economy that China joins other major economies to tighten monetary policy and lessen the excessive demand for global commodities.
