China to avoid economic slowdown

China may avoid a sudden &to=http:// ' target=_blank>economic slowdown after the central bank raised benchmark interest rates for the first time in nine years last week, a survey showed.

The economy will probably expand 8.7 percent from a year earlier this quarter and 8.4 percent in 2005, according to the median forecast of eight economists surveyed by Bloomberg News. That would follow 9.1 percent growth in the third quarter. None of the economists changed their forecasts after the Oct. 28 rate decision. All predicted further rate increases.

Chinese equities and global mining stocks slumped on Friday on concern tighter monetary policy will slow the world's fastest- growing major economy. The central bank said it was seeking to replace administrative controls such as lending bans with a focus on interest rate policy to "consolidate" progress made in cooling the economy, Bloomberg reported.

"By scrapping a limit on interest rates, we gave greater autonomy to commercial banks to decide which customers to lend to," Bai Li, a spokesman at People's &to=http:// ' target=_blank>Bank of China, said Friday in an interview. "With greater autonomy comes greater responsibility."

The central bank on Thursday jolted global &to=http:// ' target=_blank>financial markets by raising its benchmark one-year lending rate by 0.27 percentage point to 5.58 percent, the first increase in nine years. It also scrapped government rules that forbade the nation's largest banks, led by Industrial & Commercial Bank of China, from charging borrowers more than 1.7 times that rate, informs International Herald Tribune.

According to the Xinhua News, given the facts that depositors have to pay the 20 per cent in interest tax and the consumer price index (CPI) key indicator for inflation increased by 5.1 per cent in September, the new one-year term deposit rate still gives a negative real interest rate, said Joe Zhang, chief China analyst with the investment bank UBS.

Depositors' behaviour was part of the reason for the rate hike last week.

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