China's central bank said that further measures might be needed to slow credit growth after it tightened monetary policy by raising some interest rates. The central bank raised the rediscount rate at which it lends for up to 60 days by 0.27 percentage point to 3.24 per cent. It left its one-year lending rate, previously the bank's main tool for monetary policy, at 5.31 per cent. Commercial banks are not allowed to charge more than 1.7 times that rate. A sharp rise in borrowing costs could increase bad loans, which were estimated at 1.9 trillion yuan, or $231.9 billion, at the end of 2003, a fifth of total lending.
Raising the rate on the central bank's own lending brings China into line with global practices and will have some impact on money supply. In the US, a rediscount rate is applied when a bank that is a member of the Federal Reserve System (Fed) uses a customer's pledged collateral for a loan from the Fed.
