Rate-rise timing shows inflation, stock price fears

The central government's unusual timing in raising interest rates on Tuesday night suggests it is increasingly concerned about the country's runaway inflation and stock price bubble, even as the rest of the world grapples with a credit crunch fuelled by failed subprime mortgages in the United States.

Analysts are surprised at the timing of the interest rate rises, as they had expected the People's Bank of China to monitor economic data for several months before acting again after its previous rate increase in July.

The central bank broke its previous practice of announcing rate decisions on Fridays or at weekends.

The increases came after inflation last month rose to the highest level since 1997. The mainland's consumer price index rose 5.6 per cent in July, stoking concern that cash from record trade surpluses might cause the economy to overheat. Other July economic data released last week suggested acceleration of economic activity.

'This reflects the central bank's concern about inflation and asset bubbles,' said Ma Jun, the chief China economist at Deutsche Bank in Hong Kong. 'We can't rule out another interest rate rise this year.'

A big shift of funds out of deposits and into stocks is credited with fuelling this year's more than 80 per cent surge in the Shanghai Composite Index. The CSI 300 Index, meanwhile, has gained 25 per cent over the past month, even as a global equities rout wiped out at least US$5.5 trillion from stock markets worldwide.