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Chinese authorities are adopting new economic policies to fight inflation. This week the central bank raised interest rates for the third time this year. But some economists believe that will bring about other problems.
This week Chinese authorities are raising interest rates again.
The central bank announced on Wednesday that the benchmark rate for one-year loans will be raised by 25 basis points--to 6.56 percent--starting on Thursday. Also, deposits rates will be raised by a similar amount to reach 3.5 percent.
These policies are designed to reduce the amount of cash in circulation as a way to alleviate China's soaring inflation.
Figures for May showed an inflation rate of 5.5 percent—a 34-month high. Inflation figures for June will be released next week. Many analysts believe they could be as high as 6 percent. This is due to a rise in food prices after floods destroyed crops this spring in China.
Some economists believe that although raising interest rates can help calm inflation, Chinese authorities are still making the problem worse with other economic policies.
[Jia Sen, Economist]:
"The biggest problem is they keep expanding the printing of money, this is increasing the amount of cash in circulation. This is the root of the problem. They have not changed their overall financial and currency policy. When they change one thing, they lose control of another."
The rise in interest rates could increase costs for local governments who have racked up a total of 1.6 trillion dollars worth of debt nationwide. That's because some local governments need to borrow more money--now at higher interest rates--to pay back old debt.
Despite a slowdown in manufacturing this year, the International Monetary Fund is still forecasting a 9.3 percent growth figure for China.