LEAD: China's central bank raises interest rates

Asian Economic News, Nov 1, 2004

BEIJING, Oct. 28 Kyodo

(EDS: ADDING MORE DETAILS)

China's central bank announced Thursday that lending and savings interest rates will be raised by 0.27 percentage point, the first increase in over nine years, official media reported.

From Friday, the lending rate will be raised from 5.31 percent to 5.58 percent, and the savings rate from 1.98 percent to 2.25 percent, according to the People's Bank of China order, the official Xinhua News Agency and China Central Television reported.

August macroeconomic figures, such as inflation and fixed-asset investment, indicate economic stability, Xinhua quoted the bank's governor, Zhou Xiaochuan, as saying.

The interest-rate increase may soften pressure on China to revalue its currency, the yuan. The United States has been urging Beijing to raise the value of the yuan, saying the current rate is artificially low and gives Chinese exports an unfair advantage.

China has kept the yuan pegged in a tight range of around 8.28 to the dollar since 1994.

The adjustment comes as Beijing is taking pains to curb investment growth that is feared to result in a hard-landing for its economy, which has kept growing at an annual rate of more than 9 percent.

China has been taking a series of tightening steps to avoid a crash since late 2003, including the hike by the central bank in the reserve requirement for commercial banks and the ban on their provision of mortgage loans for unfinished properties.

They also include the China Banking Regulatory Commission's stepped-up enforcement of prudent lending standards and mandating a higher proportion of equity financing for new steel and aluminum projects.