ATLANTA -- Chinese monetary authorities raised their one-year benchmark rate by 27 basis points while allowing the deposit rate to remain unchanged at 2.25 percent. This move was mostly greeted with praise, but the change is trivial and will have little discernible impact on the Chinese economy or the global economy.
Since China's financial system remains underdeveloped, the economy is less sensitive to changes in interest rates. Authorities rely on other crude levers, including tinkering with foreign exchange rates and jawboning. But these have had little effect. It turns out that the interest rate hike did little to slow down yuan-denominated bank lending, as local-currency loans surged 16 percent in May.
And according to recent central bank data, the "M2" measure of the money supply increased by over 19 percent in May, year on year, the fastest growth in two years. And the rate of growth of M2 rose in April by 18.9 percent from a year earlier compared with 18.8 percent in March.