Finance ministry postpones the offering as investors prefer to wait for anticipated credit tightening by the central bank Market expectations of an increase in interest rates have forced the Ministry of Finance to postpone until later in the year a treasury bond issue scheduled for next week. In a brief statement posted on the website of the Shanghai Securities News, the ministry said the 20-year offering, due for issue to the interbank debt market, had been postponed until the third quarter. It gave no further details and ministry officials were unavailable for comment. Bankers said the ministry had made the decision because of widespread speculation that the central bank would increase interest rates in the near future. 'Because of this, investor interest in the bonds will be diminished because people would prefer to wait until they know whether the rates will be raised,' one Chinese banker said. 'By the third quarter, they will know the situation and can decide whether to purchase.' Expectations of a rate rise have increased in the past several weeks as the central government has struggled to cool an economy that grew 9.7 per cent in the first quarter, thanks to surging investment and bank credit. The government has taken a series of measures to reduce excess lending, including an increase in bank reserve requirements. Talk of a rate increase pushed yields on benchmark 20-year T-bonds, traded on the Shanghai stock exchange, to 5.5 per cent yesterday from 5 per cent two weeks ago. Galaxy Securities economist Wu Zuxiao said the increase in the reserve requirements and market anticipation of more tightening measures had caused the Shanghai T-bond index to decline 5.64 per cent last month, from 97.68 to 92.17 points. He said the best solution would be to raise rates on loans but leave those on deposits unchanged. 'Higher loan rates will help to control credit risk on lending to real estate and car purchases. But if we raise both, that would increase the attraction of the renminbi and raise pressure for an appreciation, encourage people to save and not to spend and encourage companies to save, raising the moral hazard for banks, instead of seeking finance directly.' Higher interest rates make it more expensive for the government to finance its debt. This year, the mainland plans to issue a record 702 billion yuan in treasury bonds to cover the state deficit and fund infrastructure projects, up from a record 628.3 billion yuan last year. While the issue of bonds will rise for the 11th year in succession and the cumulative total of debt continues to grow, the government has predicted the budget deficit this year will fall to 2.5 per cent of gross domestic product from 2.8 per cent last year because of the rapid growth in GDP. Official figures show that at the end of last year, the outstanding government debt, including treasury issues and foreign debt, reached 18.4 per cent of GDP, up from 8.2 per cent in 1998.