INSTANT VIEW: China raises rates after strong growth

BEIJING (Reuters) - China raised interest rates on Friday for third time this year in a largely expected move after data showed the economy grew in the second quarter at its fastest annual pace in more than 11 years.

It was the latest in a series of tightening moves that have included eight increases since June 2006 in the amount of cash that banks must hold in reserve rather than lend out.

KEY POINTS

-- The People's Bank of China raised the one-year deposit rate by 0.27 percentage point to 3.33 percent, and the one-year lending rate by 0.27 percentage point to 6.84 percent.

-- Central bank said increases to keep credit, investment in check, stabilize inflationary expectations.

-- Central bank ups rate on sight deposit to 0.81 percent from 0.72 percent.

COMMENTARY

-- WEIMIN CHANG, CHIEF INVESTMENT OFFICER, FRANKLIN TEMPLETON SEALAND FUND MANAGEMENT CO. LTD:

"I think the general consensus is the (domestic) stock market will react positively to the news. The rate hike is moderate and I think people won't move their money back to bank accounts just because of the lower deposit tax. Remember real interest rates are still around zero."

-- ZHANG YONGJUN, ECONOMIST AT THE STATE INFORMATION CENTER, BEIJING:

"I think the rate rises could curb the rapid investment growth and credit expansion to a certain degree.

"But it's far from enough. The current interest rates are still low and real deposit rates are in negative territory.

"I think China should scrap the 20 percent withholding tax on interest-rate income and raise benchmark interest rates more in the future until the one-year real deposit rate is around 2 percent."

-- IAN STANNARD, SENIOR FX STRATEGIST, BNP PARIBAS, LONDON:

"All the data we have had from China suggested this move and further monetary tightening measures, via regulatory changes, changes in reserve requirements, and interest rate rises. The growth and inflation data justify these measures. We expect gradual appreciation of the yuan, and there has been increased speculation of a revaluation on the anniversary of the revaluation (July 21, 2005). Gradual appreciation will also continue in other Asian currencies, but the yen is probably going to struggle as global risk appetite is still high."

-- LIN SONGLI, AN ANALYST AT GUOSEN SECURITIES, BEIJING: