China hikes interest rates again to damp inflation

[February 08, 2011]  BEIJING (AP) -- China's central bank is raising interest rates for the second time in just over a month in a bid to dampen high inflation.

The People's Bank of China announced Tuesday on its website that the benchmark 1-year deposit rate would rise by a quarter percentage point to 3 percent and the 1-year lending rate would increase by the same amount to 6.06 percent. The increases are effective Wednesday.

Its last rate hike came on Christmas Day, when the bank raised both benchmark rates by a quarter point. China's leaders have sought to cool surging inflation that could pose a threat to political stability.

Rising prices are especially sensitive in a country where poor families can spend up to half their incomes on food. Rising incomes have helped to offset price hikes, but inflation undercuts economic gains that help support the ruling Communist Party's claim to power.

In January, the central bank signaled that fighting inflation would receive priority this year, saying in a report issued after an annual planning meeting that "stabilizing price levels will receive more prominent status."

Inflation jumped to a 28-month high of 5.1 percent last November, worrying leaders who fear that a sharp rise in living costs could trigger unrest. Inflation has been sticking well above the government's target of 3 percent.

China's battle with inflation marks a sharp contrast with the United States, Europe and Japan, where growth has been muted in the aftermath of the financial crisis.

China's rapid rebound from the global recession saw its economy growing at a double-digit rate -- a blistering expansion that slowed by the end of last year. Analysts expect growth to slow further this year as Beijing damps on credit and tries to prevent inflation, which has been largely confined to food and property, from spreading to other areas.

Chinese leaders ordered a shift from easy credit to a "prudent monetary policy" in 2011 in a planning report issued in December.

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Online:

People's Bank of China (in Chinese): http://www.pbc.gov.cn/

[Associated Press; By TINI TRAN]

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