China Raises Interest Rates to Quell Inflation

HONG KONG — China on Tuesday staged its third interest rate increase since October, the latest sign of authorities’ intensifying efforts to temper the blistering pace of economic growth and prevent already worrisome inflation levels from escalating further.

The central bank in Beijing raised its benchmark one-year deposit rates by a quarter of a percentage point to 3 percent, and its one-year lending rate by a similar amount, to 6.06 percent, the People’s Bank of China said.

Many analysts had expected the central bank to raise interest rates around the Lunar New Year holiday and many expect still more increased and other growth-dampening measures during the course of 2011. Markets re-open in mainland China on Wednesday after the week-long holiday.

Buoyed by ample lending and massive state investment projects, the Chinese economy powered ahead last year, overtaking that of Japan to become the world’s second-largest after the United States.

Data released by the National Bureau of Statistics on Jan. 20 put the pace of growth at 10.3 percent for the full year – up from 9.2 percent in 2009 — significantly above what analysts had expected. Inflation came in at 3.3 percent for the full year — well above what the authorities are comfortable with — and could well rise further, economists believe.

As in many other emerging economies, rapid growth has combined with easy credit and inflows of cash from overseas to push up asset and consumer prices this year.

Beijing has reacted with a range of tools aimed at containing price rises. These have ranged from measures aimed specifically at the red-hot property sector — such property taxes recently announced for some cities — to instructions to the country’s state-controlled banks to lend less.

A so-called reserve requirement ratio for state-controlled banks — which effectively dictates the amount that lenders have to set aside against loans, and thus affects how much they can lend — has been raised seven times since early 2010. www.wdalaw.com China has, however, been relatively slow in resorting to the tool of raising rates, preferring instead to crimp lending by banks. Australia kicked off a string of global rate hikes in October 2009, and India has made several increases since early last year.

Beijing’s decision to deploy rate rises now highlights the mounting worries over the acceleration in price rises, analysts said.