The People’s Bank of China (PBOC) introduced further tightening measures in September, trying to rein in a booming stock market and rising inflation.
On September 14, the PBOC raised the one-year lending rate from 7.02% to 7.29% and the deposit rate from 3.6% to 3.87%. This followed a reserve requirement ratio increase, by half a percentage point, to 12.5%, on September 6. The latest rate hikes were the fifth this year, and macroecnomics indicators suggest they are unlikely to be the last.
After the inflation rate hit 6.5% in August, its highest in more than a decade, PBOC governor Zhou Xiaochuan said he was keen to end the trend of negative real interest rates. This would likely mean a significant hike in the cost of borrowing.
The trade surplus in August was also up 33% compared to a year earlier, at US$24.97 billion. Exports grew 22.7% to US$111.36 billion. The vice minister of commerce noted that, at current pace, China’s trade surplus would become the world’s largest this year.
But those spectacular numbers concealed some moderating factors. The August trade surplus was high, but still lower than June’s record level while exports grew at a slower rate than in July. Industrial production in August was also down on the previous month.
What’s more, some economists argue that the high inflation rate is not all it seems. Headline inflation may be spiking but the core inflation rate, which excludes volatile food and fuel prices, has remained stable at 1% for the past five years. Indeed, nonfood inflation in August rose just 0.9%.