China hikes interest rates again

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China’s central bank said Tuesday it would raise interest rates for the third time since October, a move to try and cool inflation and grab greater control of an economy that grew faster than expected last year.

The People’s Bank of China will hike its one-year lending rate to 6.06% from 5.81%, while raising the one-year deposit rate to 3% from 2.75%.

The rate increase was announced on the last day of the Lunar New Year holiday and will become effective Wednesday as markets reopen in China.

Authorities have been under growing pressure to rein in rising prices for food, commodities and housing after China became flooded with liquidity from record amounts of new bank lending beginning in 2009.

China’s consumer price index, the main gauge of inflation, grew 4.6% in December compared with a year earlier. While that was lower than the 5.1% increase in November, analysts think China will face nagging inflationary pressure throughout the year.

China, the world’s second-largest economy, grew 10.3% last year despite a host of administrative measures that targeted real estate speculation, the cost of food staples and the amount of capital banks had to keep in reserve.

Wednesday’s rate hike is the first since December and could be one of several more to come in 2011, economists say.

-- David Pierson