China lifts rates for third time this year
China's central bank has raised interest rates by 25 basis points – the third rate rise this year and its fifth rate increase in the latest round of tightening.
The government continues its fight against high inflation in what is the world's second-largest economy, although some commentators in China have raised concerns that the central bank had already tightened policy too far, choking off credit to small and medium-sized companies.
As the Wall Street Journal notes, how China balances controlling inflation with keeping up growth is of keen importance to the global economy.
China's consumer price index rose 5.5% in May from a year earlier – the fastest pace in nearly three years. Analysts widely expect inflation to top 6% in June before gradually declining in the second half.
The inflation figures are due to be released on July 15, along with gross domestic product figures that will likely show the rate of economic growth slowed in the second quarter.
"With inflation over 6% in June, the focus on inflation is understandable," Mark Williams, an economist at research firm Capital Economics, told the WSJ.
The PBOC said in a statement it will raise the one-year yuan lending rate to 6.56% from 6.31%, and the one-year yuan deposit rate to 3.50% from 3.25%, effective Thursday.
The move comes after the PBOC announced increases in its benchmark lending and deposit rates on April 5 and February 8, following two such rises in 2010. The PBOC also raised banks' required reserve ratio six times in 2010 and six times so far this year.
Bloomberg reports Chinese Premier Wen Jiabao said last month that the government may not reach an annual inflation target of 4% after the rate was 5.2% in the first five months.
Besides raising rates, policy makers have boosted banks’ reserve requirements to record levels, restricted mortgages and home purchases, and allowed gains by the yuan against the dollar.
