China raised interest rates for the first time since emerging from the financial crisis, in a surprise move that highlights the widening gap in the world economy between economically vibrant developing countries and the rich nations trying to fend off stagnation.
The People’s Bank of China said Tuesday that it increased the benchmark one-year interest rate on loans and deposits by a quarter of a percentage point. The move is the first adjustment to interest rates since December 2008, when the central bank cut them by 0.27 percentage point as part of a stimulus package to combat the effects of the global financial crisis. The last increase in interest rates was in December 2007, when inflation was over 6%.
The move came days before finance ministers and central bankers from around the world are to gather in South Korea, but didn’t appear to have any direct link to that meeting, nor is it likely to relieve pressure on China to continue to let the yuan rise. Economists said the move was mainly domestically focused, aimed at heading off a property price bubble and taming inflation.
With the rate increase, China joins other rapidly growing developing countries, including India and Thailand, who have shifted their economic policies to reflect how they have bounced back from the lows of the financial crisis. “Asia is leading the global recovery and is moving swiftly back toward normal policy conditions,” the head of the International Monetary Fund, Dominique Strauss-Kahn, said Monday in Shanghai.
Full story: China Raises Interest Rates – WSJ.com