The central bank raised benchmark one-year deposit and lending rates for the sixth time this year yesterday in the latest in a series of tightening measures to curb surging inflation and prevent the economy overheating.
The People's Bank of China ordered commercial banks to increase their one-year deposit rates by 0.27 of a percentage point, to 4.14 per cent. It also raised their one-year lending rates by 0.18 of a percentage point to 7.47 per cent. The increases would take effect today, the central bank said on its website last night.
Economists said the rate increases showed the central bank's resolve to rein in inflationary pressures.
'It demonstrates the government's determination to curb inflation, prevent a rebound in investment and the formation of an asset bubble because all these combined suggest the economy is moving towards the risk of overheating,' said Tan Yaling, a senior economist with Bank of China. However, Ms Tan warned the widening gap between deposits and lending rates would squeeze commercial banks' profits.
The announcement came as a surprise because the central bank usually releases such decisions on a Friday night after the close of regional markets to reduce the impact on financial markets.
'This adjustment will be beneficial in preventing the rapidly growing economy from turning to overheating, and prevent the structural rise in prices from becoming clear inflation,' the PBOC said, adding that a 'complex global environment' also prompted the rate changes.