CHINA'S central bank said yesterday that it will raise its benchmark deposit and lending rates by 25 basis points, the third rate rise this year, in the latest round of monetary tightening.
The move came as the government stepped up its fight against rising inflation and despite recent fears of an economic slowdown in the huge Communist-led country.
The central bank said the increase in rates would take effect today.
China’s consumer price index rose 5.5% in May from a year earlier, up from 5.3% in April and the fastest pace in nearly three years.
Analysts have said they expect inflation to rise above 6% in June before easing in the second half of the year.
The increase in rates was announced after Chinese Premier Wen Jiabao said controlling inflation is his government’s top priority, made more pressing after the price of pork – China’s most popular meat – surged by 54% year-on-year at the end of May.
“Stabilising the general level of consumer prices remains the top priority of our macroeconomic regulation,” Mr Wen said in remarks posted on his government’s website.
“Prices will be effectively controlled when government policies take effect.”
With the world’s second- largest economy, China has become integral to driving the global economic recovery.
Many economists had expected the central bank to increase rates this month and some think this may be the last move for some time.
“China’s inflation battle is almost at an end,” said Frederic Neumann of the HSBC banking group in Hong Kong.
“Already, there are signs that price pressures are coming off. This rate hike may, therefore, have been the last in the cycle,” he stated.
However, other experts believe inflation will continue to rise above 6%, necessitating further increases in the cost of borrowing.
“I think this will not flag an end of the tightening measures and the central bank could raise interest rates once more for the remainder of the year,” said Qiao Yongyuan, an analyst at research firm CEBM in Shanghai.
Chinese inflation figures will be released next week.
News of the rate rise jolted the heavily-weighted mining sector on the London Stock Exchange. China is a big consumer of industrial metals like copper, zinc and lead among others.
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