China's central bank raised interest rates on Tuesday for the fourth time since October in a bid to bring stubbornly high inflation under control.
The tightening of monetary policy adds to six official increases in bank reserves over the same period and follows a declaration by China's top leaders that controlling inflation was their most important task this year.
Benchmark one-year deposit rates will be lifted by 25 basis points to 3.25% and one-year lending rates will be raised by 25 basis points to 6.31%, the People's Bank of China said in a statement on its website. The rises take effect from April 6.
"This reflects the ongoing concerns that Chinese authorities have about overheating in some sectors of the economy," said James Shugg, international economist at Westpac in London.
"Some of the sectors are growing at double digits. The hike also reflects the issue of an undervalued currency. We expect the lending rate to be raised to 6.56% by June."
Chinese consumer price inflation was 4.9% in February, unchanged from January and economists have said they expect it to tick up in the coming months.
So far, complaints about rising prices have amounted to little more than grumbles, but serious inflation has sparked social unrest in China in the past.
The central bank boosted bank reserves, or the amount of cash that banks have to put aside, by 50 basis points to 20% on March 18 to lock up cash that banks could otherwise lend out and potentially fuel inflation in the world's fastest growing major economy.
DEEPAK KUMAR
PGDM 2ND SEM
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