China has raised interest rates again to keep inflation in check and prevent the world’s fourth largest economy from overheating. The move was expected as one day earlier the government had reported that annual GDP growth accelerated by nearly 11.9%, the fastest rate in over 11 years.
The new benchmark one year deposit and lending rate for commercial banks is 6.84%. It is the Beijing central bank’s third rate increase since March and its fifth since April last year. The government has also raised the amount that banks have to keep in their reserves on eight occasions in just over a year.
The fact that consumer inflation in China accelerated to 4.4% in the 12 months to June also influenced the rate rise. That level of inflation makes it more attractive for people to take their money out of the bank and try to get a higher return by buying shares which have been shooting up in the red-hot stock market. To address that, Beijing also recently increased taxes on trading of shares and cut a tax on income from bank interest.