Chinese interest rates may rise

by Richard Kilner

Story link: Chinese interest rates may rise

China’s inflation rate was said to be likely to have broken through the 7% barrier in January, state media revealed today.

The high level of inflation is causing some to call for an increase in interest rates, in an effort to pull back the rapidly rising cost of goods, especially energy and food.

Like the UK, the Chinese central bank faces something of a tightrope to walk when it comes to interest rates and inflation.

Inflationary pressures lead to a desire to increase rates, but doing so too drastically could have adverse effects, particularly at a time when the Federal Reserve has slashed its own rates.

Over the course of last year the Chinese authorities increased interest rates on six occasions.

The situation has been exacerbated by the winter weather, the worst China has seen for fifty years, which damaged crops and increased food shortages.