PBOC lifts base lending rates

The People's Bank of China has raised base lending rates by 27 basis points to 5.85% in an effort to cool the economy, but left deposit rates unchanged at 2.25%. It was the first policy rate adjustment since October 2004, and follows recent announcements that first-quarter GDP, fixed-asset investment and credit growth rates had all exceeded targets. Analysts took the moderate rise as an indication that the government would proceed slowly with plans to use market-oriented measures to fine-tune the economy. Mainland banks are expected to raise mortgage rakes, but the impact is likely to be minimal since interest rates are already low, while some equities sectors may be negatively affected. Analysts had predicted a tightening of monetary policy, but most had predicted a hike in reserve requirements for commercial banks. Deutsche Bank said further monetary tightening was possible through further rate hikes or a lifting of reserve requirements if the economy did not cool sufficiently.