China hikes interest rates a second time in 2011 on rising inflation

06 April 2011 06:35  [Source: ICIS news]

SHANGHAI (ICIS)--China raised interest rates by 25 basis points late on Tuesday to curb rising inflation as consumer prices increased more than 5% after jumping 4.9% consecutively in the first two months of 2011, analysts said on Wednesday.

The announcement was made by the People’s Bank of China (PBC). It is the second increase this year and the fourth since October 2010.

With effect from 6 April, the country’s one-year lending rates will be raised to 6.31% and one-year deposit rates will be up to 3.25%, according to the central bank.

“This round hike of the interest rate emphasised the determination of the government’s battle against inflation. Inflation has already enlarged from food products to other sectors,” said Zhang Jing, an analyst from brokerage firm Huatai United Securities in Shenzhen.

The rising global commodity prices triggered by the 11 March earthquake and tsunami in northeast Japan contributed to the aggravated domestic inflation situation, analysts said.

In March, China’s consumer price index is estimated to have risen by 5.2% year on year, higher than the government’s full-year target of 4% set earlier this year, Zhang said. He added the PBC will likely hike the interest rates again in the middle of this year if inflation continues to remain high.

Dong Xian’an, chief economist from consulting firm Peking First Advisory, echoed the forecast and said there could be another one to two increases in the reserve requirement ratio this year.

China has increased the bank reserve requirements three times this year, according to the PBC.

Inflation pressure will ease gradually in the second half of this year, but the liquidity tightening will continue to prevail in the whole year, analysts said.

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By: Judith Wang
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