China hiked its interest rates for the fourth time since the global financial crisis ended, to counter the pressure of inflation and contain the risk of asset bubbles in the fastest-growing major economy.
People's Bank of China said on its website, that effective to morrow, the benchmark one-year lending rate will rise to 6.31 per cent from 6.06 per cent. The one-year deposit rate will increase to 3.25 per cent from 3 per cent.
The move comes as a surprise to some, after Credit Suisse Group AG, Morgan Stanley and Bank of America-Merrill Lynch said that officials may halt in tightening. While Japan’s disaster and Europe’s debt woes are clouding the global outlook, Wen Jiabao's government is more concentrated on the estimated 5 per cent boost in consumer prices last month, said analyst Shen Jianguang.
Crude, on the other hand, extended its drop. Oil for May delivery on the New York Mercantile Exchange fell as much as 97 cents to $107.50 a barrel and was at $107.95 at 12:45 p.m. London time.
Chinese officials may be preparing against increased inflows of "hot money" or speculative capital, as this move further broadens the differential with rates in developed economies. The Federal Reserve in the U.S. has kept at its benchmark near zero since December, 2008.
Qu Hongbin, the chief economist for China at HSBC Holdings Plc in Hong Kong, said that a policy of "gradual" yuan appreciation is likely to remain intact. The Chinese currency rose 4 per cent against the dollar in 2010, and touched 6.5452 on April, 1- which is its strongest level since 1993.
In March, the Chinese Premier Wen described inflation as "a tiger" that once set free will be difficult to cage, and that it's also as a potential threat to social stability. He said that "exorbitant" house price increases in some cities are a leading public concern.
Inflation in China jumped to 5.2 per cent last month, the fastest pace since July, 2008. Consumer prices surged 4.9 per cent in February from the year earlier, surpassing the government's full-year target of 4 per cent.
