China raises interest rates to curb inflation

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The Independent Online

Evidence that high inflation is a concern not just for the Bank of England came yesterday as the Chinese central bank raised interest rates for the third time in four months. The increase of 0.25 percentage points is designed to curb price rises and a real-estate bubble.

The People's Bank of China pushed the official cost of borrowing to 6.06 per cent and the deposit rate to 3 per cent, clearly worried that the boost to lending and the economy administered by the authorities last year has partly run out of control. Inflation has been rising since the middle of 2009, peaking at 5.1 per cent in November, and dropping back to 4.6 per cent in December.

Markets took the news in their stride, more worried that the People's Bank would fail to take action than of the move itself. In putting further upward pressure on the renminbi, it may also alleviate tensions with the US over the alleged deliberate devaluation of the Chinese currency.

Direct restrictions on lending and tighter reserve requirements on banks have also been imposed by Beijing to dampen an overheating economy, one whose demands for commodities have pushed up the global price of everything from oil to pork. Even with the rates rises, China's economic growth is still projected to be around 10 per cent in 2011.