China raises interest rates to tame inflation

BEIJING: China's central bank on Tuesday raised interest rates for the third time in four months, as authorities’ ramp up efforts to tame inflation amid fears it could trigger social unrest. The People's Bank of China said in a brief statement that it would raise the one-year deposit and lending rates by 25 basis points each, taking the rates to 3.0 percent and 6.06 percent respectively. In October, policymakers raised rates for the first time in nearly three years as they try to restrain a flood of liquidity which has been fanning inflation and driving up property prices. They hiked them again on Christmas Day. China's consumer price index, or CPI, rose 4.6 percent year-on-year in December, down from 5.1 percent in November, which was the fastest rate in more than two years. The full-year CPI was up 3.3 percent, exceeding Beijing's official target of three percent. The government has raised its CPI target to four percent for 2011, as it is forced to acknowledge its limits in constraining prices. Ever fearful of inflation's historical potential to spark social unrest, authorities have already pulled on a variety of levers to try and rein in consumer prices and tame the real-estate sector. These include the three interest rate hikes and a number of bank reserve requirement ratio increases. But last month, Zhou Xiaochuan, the central bank's governor, warned that inflation was still higher than expected and said authorities had to remain vigilant, suggesting another rate hike could be on the horizon.