China Raises Interest Rates for 4th Time

By Annalyn Censky
CNN Money
April 5, 2011

For the fourth time in six months, China’s central bank is hiking interest rates to combat rising inflation in the country.

The People’s Bank of China said Tuesday that it will raise its one-year lending rate to 6.31% from 6.06%, effective Wednesday.

China has raised interest rates incrementally over the last six months in an ongoing effort to tame rapidly rising prices there. Consumer prices surged 4.9% over the 12 months ending in February — a rate far outpacing price increases in the United States and Europe.

As rising prices have barreled ahead, China’s Prime Minster Wen Jiabao has even likened inflation to a tiger. “Once it gets free, it is difficult to put it back in the cage,” he told reporters last month.

The central bank has used several tools to ease rapid growth in China. Interest rate hikes are one tool — but they may have topped out now at 6.35%, Mark Williams, senior China economist with Capital Economics, said in a research note.

China has also raised banks’ reserve requirements several times as a way to pull money out of the economy, but still shies away from allowing its currency, the yuan to exchange completely freely against other currencies.

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