The central bank raised interest rates for a fourth time this year on August 21 in a bid to bring inflation under control. The benchmark lending rate increased 0.18 percentage points to 7.02% while the benchmark deposit rate jumped 0.27 percentage points to 3.60%.
This came after the consumer price index hit a 10-year high of 5.6% in July. The principal cause was a 15.4% rise in food prices, with meat soaring 45.2% due to a shortage of pork.
The high inflation figures followed other macroeconomic numbers that exceeded expectations. The trade surplus for July hit US$24.36 billion, nearly setting a record high. Imports rose 27% to US$83.39 billion but exports increased 34% to US$107.74 billion, compared to a year earlier.
The trade surplus figure was especially worrying given Beijing’s repeated assertions that it is working to reduce it. However, one of the government’s reforms – the lifting or reduction of value-added tax rebates on a range of exports – was actually thought to be responsible for the rise in the surplus. Exporters were squeezing in shipments before the new tax regime came into effect on July 1.
Meanwhile, China’s money supply surpassed forecasts in July, just as the inflation and trade surplus numbers did. The M2 money supply – the broadest measure of supply – rose 18.5% from a year ago to US$5.07 trillion; it had been expected to grow 17.1%. Financial institutions were contributing to the liquidity, with lending 16.5% higher than the previous year.
But the economy was showing positive signs as August wore on. Industrial output rose 18% in July, down from 19.4% the previous month. This was thought to reflect a fall in export orders – in response to the tax changes – which should have the knock-on effect of reducing the trade surplus in the coming months.
Earlier in the month, the central bank said in its second-quarter monetary policy report that it would implement a “prudent” monetary policy in the second half.
You must log in to post a comment.
Yes, I would like to receive emails from China Economic Review. (You can unsubscribe anytime)
Copyright © 2018 SinoMedia Group Limited All rights reserved