The central bank of China has increased interest rates for the second time in a month and a half as inflation continues to put pressure on policymakers to keep rapid growth under control, according to Reuters. On Tuesday, the People’s Bank of China lifted its benchmark one-year deposit rates by 25 basis points to 3%, while lifting the one-year lending rate by the same amount to 6.06%. The changes are set to take effect on Wednesday.
The move comes despite inflation slowing slightly on an annual basis during December, although economists expect price growth to have surged to 5.3% in January, which would be the fastest rate of inflation in over two years. Xu Biao of China Merchants Bank warned, “If inflation stays high in February, the central bank will be forced to increase interest rates on a continuous basis.” He continued, “investor confidence will be seriously hurt by expectations of aggressive policy tightening.”