China announces 2nd increase in benchmark interest rates this year to tackle inflation

08:32, April 06, 2011      

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Photo taken on March 24, 2011 shows the office building of the People's Bank of China (PBOC) in Beijing, capital of China. The PBOC, China's central bank, announced on Tuesday that it would raise the benchmark one-year borrowing and lending interest rates by 0.25 percentage points as from Wednesday. (Xinhua/Wang Zhen)

The People's Bank of China, the central bank, announced Tuesday it would raise the benchmark one-year borrowing and lending interest rates by 25 basis points beginning Wednesday.

This was the second time the central bank raised the benchmark interest rates this year and the fourth increase since the start of 2010.

After the increases, the one-year deposit interest rate will climb to 3.25 percent while the one-year loan interest rate will reach 6.31 percent.

Analysts said the move indicated China's ongoing effort to ease stubborn consumer price rises, but the timing was surprising, which might mean the consumer price increase in March would top the government's forecast.

The consumer price index (CPI), a major gauge of China's inflation, jumped 4.9 percent in February from one year earlier, exceeding the government's full-year target of 4 percent.

The price pressure was still mounting. Food prices, which account for about one-third in the basket of goods used to calculate China's CPI, surged 11 percent year on year in February.

"It's widely expected that the reading of March's CPI will hit a new high. The interest rate rise is the central bank's advance response to rising inflation pressures," said Liu Yuhui, an economist with the Chinese Academy of Social Sciences, a government think tank.

Rising oil and commodity prices on the global markets will also push prices higher in China during the year, said Lu Zhengwei, chief economist of the Industrial Bank.

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