The central bank announced on Wednesday that it will increase interest rates for the third time this year, by 25 basis points, setting the rate for one-year deposits at 3.5% and the rate for one-year loans at 6.56%, state media reported. The hike is seen as another move to slow inflation, even as economic indicators show some signs of slowdown. The consumer price index hit a 34-month high of 5.5% in May, and the June figure is expected to break the 6% mark. Economists and analysts continue to publicly debate the merits of interest rate hikes. Xia Bin, adviser to the People’s Bank of China, said that the rate hike was insufficient to address the negative real interest rate on bank deposits given high inflation. However, Ba Shusong, a senior economist at the State Council Development Research Center, said such credit-driven strategies will have a limited effect. At the same time, manufacturing growth is slowing. The purchasing managers’ index (PMI) fell to 50.9 in June, down from 52 in May, approaching the tipping point of 50, where growth turns to contraction. At the same time, economists are increasingly concerned about the effect declines in Chinese real estate prices could have on China’s economic stability.
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