UPDATE 1-China surprises with first rate rise since 2007

* China’s rate rise is first since Dec. 2007

* Global investor sentiment dented by surprise move

* Analysts say central bank is focused on inflation

By Aileen Wang and David Stanway

BEIJING, Oct 19 (BestGrowthStock) – China’s central bank surprised
on Tuesday with its first increase of interest rates in nearly
three years, a move that reflects its concern about rising
domestic asset prices and stubborn inflation.

It said it would raise benchmark one-year deposit and
lending rates by 25 basis points each.

Oil prices fell, stocks pared their gains in Europe and the
dollar rose across the board after the announcement as
investors were caught off guard by the tightening step.

“The interest rate rise is entirely outside of market
expectations,” said Zhu Jiangfang, chief economist at CITIC
Securities in Beijing.

“The recent rise in headline inflation has put the real
rate into negative territory. And I think that’s why the
central bank needs to raise interest rates in such a hasty
way,” he said.

A number of leading economists, including some advisers to
the central bank, have suggested the central bank increase
deposit rates to keep savers’ returns in positive territory.

China reported consumer inflation of 3.5 percent in the
year to August and economists expect that the pace climbed to
3.6 percent in September.

Still, the increase in rates is surprising given that
several top leaders have recently expressed confidence that
inflation is under control, and have said that higher rates
would potentially suck in speculative capital from abroad.

“They did it now likely because Thursday’s GDP and CPI data
is too strong for them,” said Dariusz Kowalczyk, senior
economist at Credit Agricole CIB in Hong Kong.

China is due to report third-quarter GDP and a suite of
economic data for September on Thursday. Economists polled by
Reuters expect that economic growth slowed to 9.5 percent year
on year last quarter, down from 10.3 percent in the second
quarter.

UPDATE 1-China surprises with first rate rise since 2007