The People's Bank of China raised its benchmark interest rates
on August 19, with one-year deposits and loan rates jumping 0.27
percentage points.?
The move aims to rein in soaring credit and cool overheated key
industries. The one-year deposit rate now stands at 2.52 percent
while the benchmark loan rate is 6.12 percent. But what is the
impact of this on people's daily lives?
Deposits
The past week has seen customers, mostly middle-aged or elderly,
swarming bank counters to renew their fixed deposits to benefit
from the higher rates which were the first hike since October 29,
2005.
The rise translated into an interest gain of 21.60 yuan
(US$2.70) on a one-year 10,000-yuan deposit.
However, financial planners advised residents to check the
remaining time left on their deposits before deciding to renew as
not every renewal will benefit the deposit holders.
So, don't bother rushing to bank counters if your one-year
deposits have already been sitting in the bank for 54 days, or for
163 days on the three-year ones or 284 days on the five-year
type.
Mortgages
Xiao Yao, a 26-year-old white collar worker, immediately logged
on the central bank's Website on late August 18 once she heard
about the rate hike.
She scrutinized the announcement of the rise as she sought to
calculate how much more she has to pay on her five-year mortgage on
a new apartment in the city.
She was relieved when she learnt that the central bank also
allows commercial banks to offer a 15 percent discount on
individual mortgage loans from the previous 10 percent discount.
Moreover, rates on loans from public housing funds remain
unchanged.
Banks in Shanghai, including Industrial and Commercial Bank of
China and Bank of Communications, said new mortgage applicants with
good credit histories will enjoy a 15 percent rate cut while those
who have already signed mortgage deals with banks before the rate
hike will also enjoy the same discount on the new rates from
January 1.
For Xiao, the new preferential rate (6.48*0.85 = 5.508) is the
same as her previous preferential one (6.12*0.9 = 5.508), meaning
she makes the same monthly payment.
On longer-term mortgages, the extra monthly payment is limited.
For instance, the higher interest on 10,000 yuan on a 20-year
mortgage means one has to pay 0.35 yuan more per month. On a
20-year mortgage of 500,000 yuan, one has to pay an extra 17.50
yuan a month.
But banks will not give a discount on the rate for borrowers
with bad credit or to speculative buyers.
Stocks
The Shanghai Composite Index ended at 1,623.03 on Friday, up 1.6
percent from a week ago. Meanwhile, the Shenzhen Composite Index,
which tracks the smaller mainland bourse, gained 2.04 percent in
the same period.
"The market has already digested the impact of the rate hike as
market talk had been about the interest rate hikes for months,"
said Sun Wei, a fund manager at Guotai Jun'an Allianz Fund
Management Co.
Analysts noted that some stocks, like banking and property,
might edge downward in the short term after the rate jump.
However the rate rise could back a long-term advance in the
market by preventing a sudden fall in the economy after austerity
measures were introduced by the central government to rein in some
overheated industries.
Consumption
Theoretically, a deposit rate hike will prompt people to place
more money in banks and cut consumption. However, analysts noted
that the rate rise was capped to ensure the impact on people's
daily lives would not be too huge.
For instance, a higher interest on a 100,000- yuan one-year
deposit means an extra 21.70 yuan, but the average monthly gain is
only a mere 1.8 yuan, which barely puts a dent in consumption.
"Cut consumption because of a mere 27 basis point rate hike? Of
course not," said Xiao Gu, a 25-year-old lawyer who earns a pre-tax
monthly salary of 14,000 yuan. "Life goes on, the rate hike is too
small to cast a (negative) effect for me."
Auto loans
Most auto finance companies, including Shanghai-based GM-SAIC
Automotive Finance Co, haven't decided whether to raise their car
loan rates. They have the discretion to offer a rate discount of up
to 10 percent or raise rates 30 percent over the central bank's
benchmark rates, depending on a buyer's credit history.
(Shanghai Daily August 28, 2006)
