China hikes interest rates again to quell inflation

The People's Bank of China today announced another increase in interest rates, the fourth such increase since October, in its bid to keep inflation under pressure.

The latest hike takes benchmark one-year deposit and lending rates in China by 25 basis points to 3.25 per cent and 6.31 per cent, respectively.

The increases are effective 6 April, when financial markets in China reopen after public holidays on Monday and Tuesday, the People's Bank of China said in a web site statement.

China has raised the reserve requirements of banks six times since October to rein in credit flows and keep inflation under check.

Beijing has declared inflation fighting as the government's most important task this year to keep the world's fastest growing major economy on track.

The increase also comes ahead of an expected hike in interest rates by the European Central Bank, which is likely to raise rates for the first time since the global financial crisis.

China is due to unveil consumer price index for March on 15 April and it is generally expected to show a 5.1 per cent rise in consumer price inflation, hitting the 28-month high seen in November 2010.

China reported a 4.9 per cent rise in inflation in February, unchanged from January. Beijing is targeting to keep inflation at an average 4 per cent this year.

Rising food prices have been the main driver of inflation in China and monetary policy, as in India and other developing countries, have little effect on food prices there as well.